all, RWE notes /15 mark (copy)

Market based fior EG/ED

• market based supply side

  • Competition (deregulation, privatisation, anti-monopoly)

  • Labour market reforms

    • Improve allocations of resources

      • UK: 80s thatcher reforms reduced union power, deregulation - reduced structural unemployment LT, but ST losses→ worker wellbeing and rights reduced

      • Hertz reforms germany→ reduced benefits, increased flexibility, unemployment halved 2005-10- however jobs were low income temporary and worker wellbeing harmed due to reduced rights

  • Incentive

• Trade liberalisation

  • Make markets larger

    • INDia: 1991 reduced tariffs, open market— growth priv sector jobs, services- BUT: regional inequality in eographically less access to benefit of tariff/trade

  • Tax cuts

    • US corporate Reagan 1980s, income too, reduced unemployment, investment and jobs inc

• Floating exchange rates

General drawbacks:n

• market failure: cpR, negative environmental externalities , merit goods 不足够，包括：教育，医疗，设备，清水，卫生，路上，通勤，力， lack public goods

  • China : under allocation and over allocation →

• Weak framework —developing need stronger legal system, contracts, taxation system“ banking, so MBP do not help with this

  • Nigeria tax framework → vulnerable to corruption - inefficient tax collectyiiohn →low gov investment

    • Angola: corruption , export based diamonds → inewqualigthy

    • Depend on initial level of development

• Insufficient credit for poor, (who do not have access)

• Income inequalities — worker protection , poverty, unemployment

• Poverty, empowering women not dealt with — redistribution of wealth

• Informal economy (growth)

General strengths

• allocative efficiency, encouraging compeition, markets

Appreciation

• Exports more expensive → AD shifts left , reduced DPI, reduced CPI

  • Unemployment increases

  • Reduced cost living .

    • Switzerland 2015: imports a lot cheaper — necessities form eurozone, reduced CPI, but alr low inflation — deflation

      • future prices may have predicted to fall risks delayed consumption — reduce ad even more

      • Increases PP, international , but job insecurity and wage limits

    • SG: gov controlled appreciation to reduce inflation cpi_> highly export dep

      • Reduce price comp of exports in manu, but less price sensitive so less impacted (finance sector)+ diversified economy reduces impact on low skilled / one industry

• Exporting incdustry fall employment

  • Swiss: tourism manu, job losses, export dep regions, reduced hiring, short term work schemes, dep on ease of industry transition— low so more harm

    • But high value Inelastic like Pharma less fall → Marshall Lerner condition

• Importing firms higher compeition

• Reduced EG— deep on how much capital imported (if a lot then lLRAS could benefit?

  • Swiss 2015; exports fell (luxury watch, tourism , high PED/price sensitive ) →more expensive, forums reduce demand , reduced ad→relocariom

• Foreign debt easier to pay back

  • Swiss; reduce debt servicing cost, finance stability, but alr low reliance on debt foreign so not as sign,

• Dep on PED , duration, business cycle (Keynesian ad dpi dependent) reliance on I/E, time lag,

  • Swiss was sudden and unexpected so shock to exports,

  • Vs sg controlled and expected allow adjust timing

  • Policy trade off

  • Strong global demand helps so depend on cycle

US 2008-9 global recessions

Fiscal stimulus package 800 bn to support economy inability recession

• increase deficit and unemployment still grew past 10%

• Monetary policy— interest rates 0%

Recession was deeper than originally— new fiscal package required to help first one, gov AD help, — multiplied effect

• but crowding out issue

Policies to reduce inequality

Sweden progressive taxation

• 2021: highest marginal rate 57%

• 1990: gini coefficient 0.23 which is low 2019: still low 0.25

• Investment in social welfare and universal healthcare, education, social security benefits,

Brazil

• Income inequality worsened by high indirect taxes

  • Highest levels globally 之一, 0.54 coefficient , regressive system worth almost half of tax revenue vs Sweden 20%

  • 50% tax revenue 2000s

France lowering top income tax from 75 to 45% after extreme hike 2013-15

• People leave millions due to tax, reversed as result

US luxury yacht tax indirect 1990s-93

• very high PED luxury, destroyed the industry and reversed later m workers harmed in industry , lower revenue than expected , delayed or bought abroad

I economic growth lead to better SOL?

jobs output correlation , multiplier effect

Higher income and profits taxes positive feedback

• 2000-10 US lost millions of jobs in manufacturing due to technology changes

  • China also same situation — workers not always benefit from output increase if can be replaces

• Gov spending caused EG: workers benefit from jobs SG; 2020 spending created jobs childcare and education, healthcare etc

• Salaries may not rise with output — profits go to shareholders instead — inequality rises

  • Purchasing power not change and reduce —US prices rise with EG normal with natural inflation but wages stagnant for bottom 50% since 1980-2014

Negative EG consequences

China

• SOL

  • Farmers rural areas less benefitted lower access to healthcare and education since EG centred in coasts

  • However : 2021 common prosperity Forced big firms like alibaba to contribute to social development

  • Eliminate extreme poverty but GINI coefficient not change much since 2008-2020

• Environment —

  • 2013 airpocalypse hazardous levels — Yangtze River pollution toxicity , 3 gorges damn irreversible for power caused dolphin extinction

  • War on pollution policies in 2000s harmed economic growth due to production costs rises

UK

• Incomes

  • top 20% 36% income in 2022

    • Growth benefit rich mostly and south area leading to regional inequality

  • Housing prices doubled since 2000s and cut in income tax for top %— finance and tech centred EG benefitted those

• SOL

  • Consumption and spending on healthcare education most of UK GDP ,

  • Share of women in ^1% increase

    • Gender pay gap 7% but wealth gap 20% — vulnerable to economic shocks

  • Spend 45% budget on merit goods which is below average for others like Sweden Denmark , bigger than US (30%)

• Environment

  • 1970s— half of biodiversity lost in UK

• Dist income

  • 1980s inequality increased due to deindustrialisation and move towards tertiary — gini increased

  • 50s to 80s decreased

  • 2000s more stable ,

  • 2008 recovery assets and housing recovered faster which benefited rich wealthy

  • Currently disposable income difference between north and south is big — northern income stagnation

AD growth lead to inflation?

• US 2008/9

  • economic growth rebounded but inflation didn’t rise much — due to following recession spare capacity Keynesian idea

  • can be accompanied with LRAS increases (Keynesian and monetarist)— American recovery and reinvestment act — gov spending may have offset and created AD itself

• 1985-88 UK

  • Economic faith hugh , housing boom increased value of property and concept of wealth rising lead to AD, lower IR , borrowing increase, confidence high —

  • But inflation beaked in 1990 at 10% due to lack of spare capacity and cost of production

Interventionist based (for econ growth/develoop)

• correcting market failures : Usman cap, infras, institutions, income redist, poverty, gender q,

• BUT: budget, bureaucracy/ineff, protect ineff, allocative ineff, corruption, influence of elite

 

 

trading blocs

Def: agreements between countries reg trade barriers, shared policies..

Advantage

• Create trade+ GDP

  • Remove tariffs : EU single market 1993

    • EU-EU trade worth 60% EU trade

      • germany benefit from export growth + employment

        • But benefits uneven— depend export dep country/not

• EoS for firms - increased competitiveness (lower avg costs)

  • ASEAN2015, firms Thai and Viet expanded manufacturing + export growth

• FDI

  • benefits infrastructure, jobs,

  • NAFTA 1994: Mexico received FDI for manufacturing, job export growth also

• Efficiency

  • EU compeition - telecoms, airlines, lower prices, allocative efficiency

• Political / econ stability

• Competition, bargaining power

Disadvantage

• trade diversion - inefficiency from non-members to inefficient members

  • EU common external tariff caused Braxzil cheaper agricultural imports to be replaced by expensive EU

• Unequal benefits

  • Stronger economies gain more (becuase adv over foreign vs weaker)

    • EU debt 2010-15–> Greece struggle vs germany , unemployment regional

• loss of sovereignty (regulations and rules)

  • Uk leave EU due to loss of trade, free movement of labour

• Structural unemployment

  • NAFTA US manufacturing shift to Mexico , losses job in US, depend on labour mob/training

• Xternal barriers harm non M

  • Bloc impose tariff on outsider

  • EU on African agr exports CAP — reduced opp/racket access

C

Limitations of GNI GDP

• Do not include underground parallel markets

  • US black markets — illegal stuff worth half a trillion

  • Italy shadow economy — domestic workers, construction, small businesses bad in cash so not recorded-11% of GDP, tax evasion, org crime— also loses tax revenue

• Quality improvement

  • Phones stable price but quality and features improve

• Negative externalities /depletion of natural resources

  • China rapid EG but pollution consequence , china second highest GDP, but land, air , water pollution and destruction, deaths from related diseases — biggest CO2 emission / lithium reserves. :depletion caused by overconsumption and EV Parker — future supply sustaining ’

  • India river pollution

• Differing price levels — purchasing power

• Composition of output — which GS better SOL

  • Saudi military spending boost GDP but actual benefits to public less, vs Sweden Denmark- prioritise healthcare social spending / wind turbine and higher SOL lower GDP

• Reflect education healthcare

  • Costa Rica vs US life expectancy

• Income vs output EQ

  • South Africa high GDP per cep but extreme inequality top 10% more than 50% income

  • India 10% top have 80% wealth , low GDP cap , 1% have 60%

  • US also

• Quality of life and leisure

  • China work culture stress, worse democracy , Russia GDP vs corruption

  • US: via income inequality , healthcare disparity despite high spending — uninsured low life expectancy poverty and homelessness — work life balance lack of leave guaranteee

  • Qatar: high GDP per capital , lack of freedom, environmental, low wages migrant standards

Interentionist supply side policy

employment

• China — infrastructure investment 2008-15

  • public spending on rail,roads,infrastructure

  • Jobs created, fall in cyclical unemployment post financial crisis

• Germany 2008-9 + in 2020

  • Gov subsidised wages to maintain employment during lay off risk

  • Unemployment stay low even in recession (5-6%)

• Brazil BOLSA familia 2003

  • Conditional cash transfer increase school attendance

  • Improve LR human capital , reduce structural

• India MGNREGA2005

  • Guarantee 100rural employment days by gov

• Singapore skillfuture 2015

  • Gov funded training and reskilling

Persistent current account defitcit

Will eventually run out

• depreciation ← Downward pressure on currency

  • UK: import inflation, real wages fall

• funding with borrowing debt

  • Depreciation , — import inflation

  • Risk— sell currency → further depreciation → more depreciation and CIPI

  • Worse international credit — harder to get and pay back loans - higher IR

  • Demand management policies bad

  • Harder and fewer import capital goods - money flow out

  • Lower economic growth / SOL

    • Depend on: borrowing used to import capital goods—which can improve productivity /lower production cots— higher employment, same for raw2 mats, and opponents of ex[prted goods , ecn growth AS LONG AS CA RELAGTIVELY SMALL AND NOT TOO MUCH BORROWING˚˚˚˚˚

• Funding with selling assets—> UK

  • indebtedness= foreign ownership of domestic assets, — lose future income streams,

  • Interest rates — increase to attract financial investments, sale of gov bonds egl: — opp cost hinder EG

  • Depreciation — all the disadvantaged og this

  • Credit ratings / confidence

  • Demand policies, eG/SOL

    • Depend on: entrepreneurship— sale of existing business and creation offset, confidence in economy currency,assets can be sold continuously over time , or if create new assets

• Selling forex: SRI LANKA→ sold reserves and borrowed money (debt borrowing also), eventually run out

  • Could not pay for imports , necessities like fuel and medicine!→impact SOL

  • Credit rating collapse , high borrowing costs , reserve depletion (complete loss 2019-22)

  • Debt servicing impossible— 2022 default

Overall

• depend on persistency, size, reserve level, whether import capital goods

• But US persistent deficit → no crisis and still low borrowing / demand for currency - due to role of USD as global reserve , investor confidence,

Current account surplus

• Low domestic consumption implication — SOL

• Insufficient domestic investment - leakages - limit EG

• Appreciation - bad/good

• Export compeititive

• Retaliation

• Employment ; g/b

Good:

• higher income flow from foreign assets

Economic barriers on EGED

1. Income inequality : low savings and spending by poor , vs rich :

   • MPC with rising incomes argument

   • Asian countries like , SG, SK economic growth > unequal African and South American like SA/brazil — emphasis on income distribution like

     • China poverty elimination and recent 2021 prosperity — but initially huge growth with inequality even — strong infrasture and capital

   • Reduced ability to human capital, lower productivity , low income cycle

   • Powerful policy influence against interests , stability

2. Dependence on primary sector

   • Ghana agricultural commodity , vulnerable to price fluctuations, also agriculture as industry relies on human capital - health, so when coupled with disease makes worse

3. Geography , climate disease,

   • Ghana / Sierra Leone Ebola 2015-growth collapse / sub sharan malaria and disease problems, frequent cases, high disease and mortality rate , reduce productivity directly and indirectly, (lost wages, costs, ) also stems From poor infrasture — cold chain supply medicine, production— dumsor “”( electricity shortage)

4. Indebtedness,

5. Lack human capital and infrastructure, credit

   • Nigeria tax insititution lack→ large oil revenue and exports but corruption and limited tax collection weakens growth — need to diversify , also poor infrastructure, industrialisation need but lack, inequality not main issue

   • Bangladesh micro finance improvement →increased entrepreneurship so yes was issue,

6. Informal economy

Trade protection vs free trade

Free trade

• removal of tariff/quotas, price fall

• Comparative advantage (Cheaper/more efficient)

  • Specialise in goods with low opportunity cost—> eoS, compeition, AE, wP<dP

• WTO: tariff global reduce, trade volume increased 1995++

• NAFTA— lower prices

• China— growth from exports, poverty, employment

  • EU— increased INTRA EU tradE

    • long term growth/efficiency, structural unemployment, inequality,

Protectionism - restrict imports , raise prices world vs domestic, corruption

• deadweight loss. Higher prices

• Infant industry (for growth LT), protect jobs, dumping, national security

  • Bangladesh protect textiles with tariffs and export subsidies, helped achieve global competitiveness and majority of export revenue

  • EV subsidy china: become more competitive, take over tesla BYD in 2025

• National security

  • US steel tariffs, china mexico, 2018 trump> protect domestic but raise costs→inflation CPI

    • led to US china trade war: retaliation: us goods tariffs reduced trade, job losses, certainty

    • Caused job losses > gained — dep on industry

  • India defence, restrict weapon imports , UK steel subsidy — but unsustainable

  • China mineral exports ban , supplied to world like US— now US struggle for alternate suppliers

• Health safety

  • EU CAP - raise prices protect EU farmers , developing exporters, also food safety concerns

  • SK ban Japanese radiated fih

• diversify

  • Botswana diamonds, dep on revenue, vulnerable to volatility and depletion, so tourism developing, technology

  • Nigeria oil export reliance— still reliant

• BOP fixing

  • India tariffs high tariffs non essential, conserved forEX promote domestic, imports fell 1950-80s

  • Nigeria: falling oil prices - dependent on oil shock, reduced revenue and increased deficit → forEX short , so banned access to ForEx for certain items imports, increased barriers customs.. successful at aims BUT: caused higher prices and black markets

• Tax revenue (developing usually)

  • Sierra Leone — but reliant

  • Bangladesh— 10% revenue

dep on development, strength domestic (EG: EU UK/GERMANY VS Greece)

Fiscal policy (for inflation)

Contractionary — decrease AD for DPI reduce

• increase taxed, reduce disposable income , reduce gov spending and injections ,

  • UK— austerity 2010-15 : government spending cuts tax increase after 2008 crisis, reduced inflation successfully 3-4 to 0 2015?

  • Slow recovery public services strain (lower spending)-

  • Real wage stagnation

• Greece 2010-18 austerity

  • Higher taxes, spending cuts , deflation BUT very high unemployment due to (lack fine tune), impact large (“negative multiplier effect”)

  • Debt crisis within eurozone , need austerity for bailout funds

    • GDP fall , youth worst unemployment , unable to devalue currency du to EU constraints — overcorrect AD?

• Singapore GS increase 2023

  • Short term price level increase — reduced long term DPI

• Brazil - recession period

  • Recession worsened but inflation improved

    • Depends when tax increase

      • Roosevelt after WW2, super high taxes, but firms received pressured increase from trade unions —> wages increase anyway and compensate with high produce →inflation

• Can’t target costs push

Tariffs

• US

  • 2018 washing machine , domestic prices increase also due to demand increase after foreign price rise

    • Created 2000 domestic jobs, foreign firms open in US to avoid tariff

      • But consumers payed billion+ in higher prices, tariff collection not even worth 10% of cost

  • 2018 steel tariffs aluminium from china

    • Producing cars in US more expensive , jobs lost in domestic car industry

    • 142000 jobs lost , cost per household 625$

  • Tariffs also noted hard to remove (political)

• EU

  • US chicken tariff bc hurting domestic , retaliate with tariff of vehicle (Volkswagen)

Quotas trade

US sugar

• cause domestic price 2x world price

  • Increase domestic production

    • More efficient producers deprived in developing

    • Domestic producer benefit, consumers lose , confectionery and soda lose too

    • Jobs created in sugar but lose in downstream industries —10k-20k lost yearly ,

      • Relocated to Mexico due to lack of profit

    • Environmental cost — sugar fertilisers , irrigated land opp cost

Subsidy (production)

Argentina gas

• boost production , natural gas and reduce imports reliance , also potentially for exporting

EU retaliate against US imports — tariffs raised due to US subsidy Boeing

EU subsidy of agriculture

• harm developing African nations, cheaper land and labour but prices still higher to to Eu subs — biggest food exporter to Africa

  • Cheaper to buy EU than local — Senegal Germany, Cameroon Germany, Kenya Italy below production costs

  • Create food surpluses in EU to be exported

UK Steel

• manufacture for economy, provide trade and jobs , structural unemployment protection. , trade balance,

• Environment promote by incentive greener methods by gov - rely on subs

  • BUT: fiscal costs , tax, deficit and debt, efficiency loss

Export subsidy

US EU subsidy food

• so much Q that lowers world process harm developing countries producers

  • consumers benefit , lowers SOL revenue of producers, production decreases, reliance on food imports lead to shortages

  • Politically benefit everyone, farmers represent small portions in US EU vs developing majority

• brexit based (trading blocs)

EU common market - UK in 1970s joined

• CAP, foreign policy

• Free movement of labour and capital ,

• Same regulations and supranational bodies

Dis staying

1. Political : voted to leave so align with public

2. Sovereignty:

   • Decisions made by UK rather than Brussels admin, not account for voters and UK as much

3. Immigration

   • Free movement of labour, lack border control and restrictions immigration, worker skills to align with needs through scrutiny

4. Customs union

   • Can’t negotiate trade independently,

5. EU budget contribution

   • UK contribute to Eu but less in return, benefit smaller economies, cost of membership! (Although kinda small 0.03% gdp)

6. CAP opposition.

   • Supports EU farmers, absorbs EU funds and promotes inefficiency - UK useless to support

7. worker protection legislation

   ads staying:

   1. EU trade

      • 50% exports to EU, huge market with free trade lost , exports declines

        • Trade now underperforming and balance worse

   2. investment

      • FDI lost since lose access to Eu , may move to EU countries , secondary risk jobs employment, business

   3. Beneficial worker legislation rights

   4. Immigration benefits for labour especially hospital shortage jobs , building, service,

   5. CAP bad but being reformed

   6. Fall in pound — depreciation, uncertainty — DID HAPPEN! And inflation result — falling real incomes (income stagnation)

   7. Fall in political influence

1. competition, expansion, EoS

Depreciation

India

• 2018: dep against USD , due to tighter monetary policy of US fed reserve , inc oil prices — India imports mostly ,

  • Current account worse

  • Inflation CPI, consumers goods also increased dep on crude oil and others weak ruppee also

  • Employment affected in related industries imported , loans

turkey

• depreciation of 40% 2021

  • Extreme inflation of 40% , low interest rates policy but now starting to increase 2023 interest 40% inflation 60%

UK 1992–left eRM

• depreciated 15%, inc exports, GDP, reduce unemplment export sectors limited inflation — PED exports elastics

UK 2007

• reduced purchasing power, drop 25% value, inflation , financial crisis>?

  • Somewhat helped trade (exports)but not a lot, bc exporting, Marshall Lerner condition not fully satisfied so weak export response ,

  • Inflation without growth

china yen undervalued

• As of now undervalued p to 25%, due to trade surplus a d deflation, unfair trade advantage argument

  • Peg to usd + accumulate FX reserves

  • Huge surplus , some import inflation , trade tensi/ret

    • Overreliance on exports — vul to dem shocks

+ business/gov tactics

1. Nudge theory UK+SG

   • Sweets as back of shops/ category rating abcd

     • reduced by 25% UK

   • pension savings default increase over time

     • increased long term savings, vs opt-in

     • Correct choices of under saving

     • Freedom

2. NY serendipity restaurant anchoring (retail pricing strategies)

   • Anchoring: Item listed as $69, make $17 seem reasonable/cheap in comparison

     • sales of 17 burger increased after

       Evaluation:

     • Decisions are not based on rational cost-benefit, but anchored to initial price.

     • Suggests firms exploit behavioural biases; consumers are not always rational.

   • Supports behavioural economics' critique of perfect information assumption.

3. USA organ donation (default choice)

• Default = opt-out → high donation rates

  • In US states with opt-in systems: only ~25% consent rate

  • In contrast, Austria (opt-out): ~99% consent

    • Evaluation: Shows how default settings override rational choice — people stick with default due to bounded rationality. Challenges assumption of utility-maximising, fully informed consumers.

    • More socially desirable/less backlash tactics, but still may feel sense of manipulation
      

Market structures Oligopoly

collusion

1. OPEC

   • few producers coordinate output

   • 2020: cut supply to raise prices during demand slump

     • collusive oligopoly acts like monopoly

     • Higher prices lower output

     • Can stabilise market in some cases

   • OPEC talks collapsed when russia refused oil cuts, Saudi responded = interdependence

     • increasing production = price war, low prices

     • depend on trust and transparency

     • Risk: attract regulatory attention (2021 US sense accused collusion)

     • Consumer higher prices and reduced efficiency

2. Dairy products in UK supermarkets

   •   Sainsbury, Asda and Safeway, etc, colluded to increase milk prices in 2002 and 2003

   • Tesco has 27.9% of market shares in British supermarkets, Sainsbury’s has 15.6%, Asda has 14.4% 

     • 270 million pound additional profit overall

       • 80-110 million pound fine NOT ENOugh

   3. Fast food differentiation

    

   
   

Monopolistic competition

1. Coffee shops in UK (preset, costa, locals)

   • many firms and low barriers with similar but differentiated products (location, branding, menu)

     • Short run abnormal profits

     • Greater consumer choice, innovation, NPC

     • inefficient allocation (P>MC)

     • Long run normal profits

       • More variety than monopoly but firms not produce at lowest cost

Monopoly/natural

Monopoly

1. Goggle: 90% of global search market, price maker (data/ads)

   • abuses of market power in 2018: EU fined billions for forcing android to pre-install goggle (manipulating competition)

   • Allocative inefficiency= restricted consumer choice, biased search (prioritising own shopping sites)

   • abnormal profits

     • fund R/D, limited competition however

   • Gov anti-trust regulation, depend on enforcement strength / speed, size

2. Apple innovation

3. Uber predatory pricing

   • competitor taking market share away in California (fly-wheel)

   • Low prices to outcompete bc of EOS

     • consumers benefit

     • Flywheel loses almost all shared

4. Same with Amazon for diapers . Com

   • Amazon ran losses during this time

     • diapers more innovative, Amazon takeover hindered innovation, harm consumers long term benefit short term w low prices

5. Luxottica glasses

   • less innovation but high prices

Natural

1. UK water industry (Thames water)

   • hugged fixed infrastructure cost, multiple firms would be inefficient

     • EOS justify

   • Allows consistent service, but lack of competition

     • less incentive for efficiency + quality

   • Regulation needed to incentivise and prevent abuse (control prices/quality assurance)

     • 2023: faced backlash for poor sewage handling, public pressure+ political impact (gov complacency

Rationality / beahvioru

1. UK sugar intake—self control

   • NHS recommended levels, sugar consumption still high above recommended levels

     • people aware but still eat: habits and bounded control

     • Dont always act in long term self interest, nudge theory better

2. Bounded rationality/computational

   • Hard Rock Cafe SG over 200 menu choice, do not have capacity to process + best choice

     • this may not always be issue with use of technology like booking websites which can make high Q of info easy to process+ make best choice

3. Selfishness

   • assumed to act selfishly—(own best interests, may not)

   • Bill gates donates a lot to many charities+ healthcare

4. Imperfect info:

Perfect competition— RWE in other set

1. India tuktuks

Asymmetric info + solutions

= buyers and sellers do not have equal access to information

moral hazard—takes risks and not face full costs of risk bc borne by other

Adverse selection—one more info abt q of product

1. USA used car market

   -buyers dont know quality, risk of buying bad car

   • reduced demand for all used cars market failure, good used cars not sold

   • Gov; dealers must disclose history , warranties, etc, buyers allowed to return if bad condition

     • Reduces info gap , more efficient

   • but enforcement required , varies

   • Cost to gov and firms (admin ) may be passed onto consumers through price

2. USA health insurance (pre-obama)

   • consumers have more info abt own risk than sellers,

   • Sick people more likely to buy —> insurers spend more, so make prices higher for all

     • insurers may ask for health history

     • Obama care 2010, mandated coverage + subsidised

       • reduced uninsured , improved access but price stil rise

     • Deductibles SG insurance– to improve this- consumers pay portion 5%

3. SG/EU food labelling— GOV regulation and prov info reqs

   • Mandatory calories, sugar, fat labelling on packaged

   • SG: SFA liscencing + inspection foood safety regulation

   • SG graded (ABCD) sugar+ ‘healthy’

     • consumers can make better informed choices,

     • Persuasive advertising SG formula milk→ premium images, nutrition claims not backed up →price rises, so health board prohibit and launch education campaign

     • However

       • consumers may have limited cognitive: dont know significance of calorie/fat, so SG labelling may be better

       • Also, stil remains rational limitations: slelf control

       • Firms may manipulate/escape with small text+harder to understand, or just not fully disclose to gov

     • Better effective with education+nudge policies

taxes junk food

• USA: tobacco, alcohol, soda

1. - UK junk food tax, recent added,

   • since 2013, places add soda tax

   2. - only Hungary and Mexico have junk food tax

      • 2011 4% tax on packaged foods/drinks with high sugar

        • evaluation: junk food C decreased due to price increase (tax), BUT ALSO: educational campaigns

        • People bought cheaper and often healthier alternative

        • Hungary is focused on nutrition incentivised firms to renew recipes , many did to make healthier

          • gov revenue: 219USD —public health

      • 2013, Mexico 8% tax on junk food/calorie dense

        • evaluation: junk food consumption reduced by 7%

   3. But regressive: most impact on low income groups, (or consume a lot of junk food)

   4. Argument of infringing people’s choice—political pressure

   5. Education option; more educated, junk food consumption less

   6. Need to make healthier food more accessible and cheaper

taxes cigarettes

Australia tobacco tax

• One of highest in world

• Aim to reduce daily smokers

• Price rise by 10x since 1990s

  • make up 65% retail price in taxes

• Seems to help reduce smoking rates

  • regressive tax , poorer more smoking rate also, price affect them , (3x rate)

• Education/mental health campaigns— not just addiction, reduce availability too, not just price

China cigarettes

Vaping tax

20% sales tax B.C since 2020

Quebec introduced complete ban of vape sales,

subsidies ch 4

1. US rice:

• excess of $1 billion subsidies towards farmers in 2004

  • Haiti negatively impacted: 60% rice imported, but for farmers without subsidies in Haiti and with lowered tariffs to US, cheaper rice from US replace domestic

  • Fewer profits now 80% imported

2. India fertiliser

• reduce subsidise on soil nutrients, chemical free farming

• Hurts crop yields and earnings, 60% population depends,

• Prices of crop nutrients rise globally crisis

Max price

1. Malaysia masks during Covid

   • shortage of face masks

     • smaller sellers charge above the limit RM0.10 over for surgical masks and RM2 over for N95

     • Most large firms complying

     • Other stores would buy large Q and resell for profit ,

       • face fine of RM100,000/imprisonment, or RM500,000 for

     • Singaporean cross border buyers since cheaper in RM

       • Sg provide for free

2. Venezuela inflation —price ceiling

   • Rice equilibrium price 15x higher than max price, but max price of only 12c

   • Monitor supply chain—opp cost

   • Way below equilibrium, no incentive

   • Waiting time whole day, rely on black market

     • high prices

3. Mumbai rent controls

   • rent prices same since 1940s in some areas,

   • No incentive to maintain or build new: collapses multiple , house squatting low quality and quantity

Min price

1. EU CAP/milk lake

   • overproduction, excess saved for future if output falls—> milk lakes, butter mountains

   • Brussels buys up milk since 2015 , keep farmers in business after falling prices : E640 million, 100s of tonnes in storage ,

   • pay E120,000 a month for storage ,

   • Loss when selling

   • Dumping foreign markets in west Africa

2. Canada

   • artificially high prices for milk, chicken and eggs—spillover on other products

     • regressive

     • Richest farmers benefit

3. Scotland MUP

• alcohol: preventing alcohol related deaths — point for aims of gov to reduce demand instead of protect producers,

  • limited effect on dependent people

Min wage

Using real-world examples, examine the importance to producers of price elasticity of demand and income elasticity of demand.

 

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PED affect the revenue change after a change in price, which affect the producers’ decision on how to adapt their price to influence profitability.

 

-              YED affect the revenue change after a change in consumer in income, the producer may want to respond to change in income tax, consumer indebtedness to gain higher revenue.

Luxury and Inferior...

 

-              YED is not as important for producers of necessities (YED is in between 0 and 1),

o   As income grows, less household is spent on necessities as a proportion of their entire income, however, this does not have as big as an impact on the nominal value of necessities purchased. For example, A low-income household spends 6,000$ on food, which is 30% of their income, and high-income households only spend 7% of their income on food, but that is around 10,000$.

o   This increase may be due to increase in quality of necessities, e.g. eating more organic.

RWE: apple usa / global

-              iPhone pricing , high prices but revenue and profit not damaged — indicate low PED (Due to brand loyalty and strong image, ecosystem of apple products + percieved lack of substitutes)

-              Hpwber, perform worse in certain markets like india due to low income —UED variance?

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LV(MH)

-              Revenues increased significantly post Covid as incomes rise— indicate YED elastic/luxury goods

-              So target high incommarkets and econmic grow regions  no

-              - LVHM not But volatile as affe  — recession vulnerability

 

McDonald’s

-              Some places inferior, some place normal good — harder to predict ,

-              Typically inferior , so during recession can benefit

 

Uber uses real-time surge pricing (since ~2014 onwards globally)

Prices can increase 2x–5x during peak demand (e.g. rain, events)

During peak times:

Demand becomes relatively inelastic (urgent need for transport)

Uber increases prices sharply

Market oriented +/–

Competition policies, labour market, incentive related

strengths

• AE

• Policy flexibility

Weakness

• market failures , CPR, merit, public

• Institutional weak

• Inequality poverty, credit for poor

• Gender eq/ female empowerment

• Informal economy

• Effect on EG ED

Interventionist +/–

• market failure correction

• Human capital investment

• Infrastructure

• Institution

• Equality

• Stable macro environment

Weaknesses:

• budget ,

• inefficiency protection

• AIE

• elite group pressure

• Corruption

• Poor governance

Strategies for EGED inward foreign investment

Bangladesh textiles

• Low labour costs lead to FDI, now largest one of textiles exporter

  • Created lots of jobs, but safety concern

    • Low labour standard wages , 2013 collapse of garment factory killed hundreds due to ignored standards

Vietnam exports tech

• special processing zones created

  • Samsung , semiconductor , FDI makes up 70% of exports

  • Manufacturing jobs created

    • But : dependence, limited domestic tech development, environmental concerns

China SEZ

• 1980s special economic zones - tax incentives and relaxed regulations

  • apple FDI, electronic firms investment, manufacturing

  • GDP growth,

    • But pollution and reliance on exports regional inequality

Anglo American Chile

• employed thousands, highly skilled work done by expats

  • Tax revenue but environmental harm

Strategies EDEG interventionist taxes

Taxes

• Georgia 2000s

  • increase gov revenue — improving collection and coverage, increased gov revenue and allowed investment in infrastructure and reforms

• Phillipines sin tax reform 2012

  • Increased taxes on demerit goods raise revenue

    • Healthcare spending allowance funding for universal health care and access poor, reduced econ disease burden

• UK capital gains tax 2024

  • Raise income from wealthier and redistribute — budget surplus , fiscal space for debt and services

Interventionist transfer payments and min wage

• payments by gov to vulnerable groups for income redistribution

Brazil bolsa familia

India covid PMGKY: free food grains for low income to stabilise economy

• less likely to access remote work so need ,

  • However many no have bank accounts so couldn’t access payments

Legal minimum hourly rate employers must pay for labour

Brazil 2000-14

• double min wage, reduced poverty by half improve HDI

  • But reduced firms international competitiveness due to cost

china 2000-15

• increase min wage gradually

  • Increased incomes and reduced poverty

  • But firms invested in machines causing unemployment and weakened competitiveness of Chinese firms exports

institutional changes strat EDEG

Microfinance

• credit small amounts to people who don’t ord have access to credit

• Delivered via insitutions commercial banks and loan groups

• GRAMEEN BANK BANGLA

  • Almost all borrowers women — repayment rates successful, priories human capital and environmental development

Digital finance

• M Pesa Kenya

  • Millions of users and 90% use mobile money , helped raise out of poverty , but

    • Concerns of business over monopoly power

• Apple Pay

  • Support transitions toward cashless economies —

    • But transaction costs and big tech have influence of payments

Perfect competition

• Canada wheat farming

  • homogenous goods (standardised) , many producers, price taking determined by global supply demand , low barriers to entry (not 0 bc real world)

  • Incentive to differentiate reduced bc assumed homogenous

• Farmers markets US — year round, produce directly sold to consumers

  • Multiple farmers sell identical products, prices are low with competition , affordable and quality

  • Vulnerable to instability of prices and income

  • Due to small size of each firm entry into markets easier vs oligopoly or monopoly jet engines Boeing eg

• Midwest corn US

  • focus on maximising efficacy with land use and technology, resources allocated to highest productivity due to price taking

  • But bad for farmers: can’t negotiate higher prices and suffer if global price falls and low profit potential — dependent on subsidies

Producing the quantity and combination of goods most wanted by society , when economy allocated resources so that society gets maximised benefits from consumption

posisitve externalities—healthcare spending

1. UK NHS spending

   • OPP cost: 129 billion in 2018/9, increase with inflation by 2020,

     • also spent on education, initiatives, training, infrastructure, etc

   • Under provided+funded—> meet demand and MSB

   • Low efficiency and leads to moral hazrad (wait times)

Negative consumption externalities: ads + gov regulation

1. SG checkouts in groceries dont allow demerit goods like alcohol/cigarettes, diesel, petrol, lottery tickets to be bought under vouchers

2. ad campaigns for healthy food, anti-smoking

   • Australia

   • USA: “tips from former smokers” campaign 2012 successful

     • 1.6mil attempt to quit

     • Cost-effective: less than $200 per year of life saved

   • BUT: depends on restriction on advertising FOR—UK: 2017 Junk foods ads spent more than healthy eating

     • obesity increases seen

     • 27.5x spent on junk foods ads

       • also depends on quality of ads

3. Chian car number plate policy

vaccines positive externalities consumption + public good

1. UK vaccines subsidised

   • 20 bil pounds, for R+D

   • Vaccination campaigns

     • free vaccines, accessible

       • reduced hospitalisation significantly (more than vaccinated %) -herd immunity

2. Sg Free of charge vaccines /subsisidsed

   • free for kids

   • reduce risk of disease outbreak

   • For adults heavily subsidised —low price=access

   • OPP cost

pos externalities consumption: Education

1. Korea Uni Subsidies

   • 860bil won

     • all unis nation-wide, not taking into account performance, but by size and employment safety

   • In order to achieve job security

2. Finland 2000

   • free education since gov funded, Uni also

     • top ranks in education, productivity and innovation

3. UK legislation

   • ages 5-16 school is mandated

   • Truancy rates monitored and attendance rates (monitoring OPP cost/enforcemet), but we’ll emforced,

     • but depend on quality for outcome, resources availible

Regulation in dealing with Negative production externalities (also CPR air)

1. China air pollution, 2013 reached hazardous levels

   • policy: gov regulations: simple to implement, force compliance + limit pollution

     • environment regulations, shutting down causal factories and promoting renewable energy

     • Restricted coal-fired power plants

     • Vehicle standards (limiting causal tech)—also SG on car emission

       • Outcomes reduced 40% main cities but less in rural/industrial areas

     • but less efficient—doesn’t diff between low/high cost of reducing pollution

     • Policing OPP coSt

2. Market based policies:

   • carbon taxes

     • but: not forced to reduce

     • Regressive (if tax)

     • Estimating right amounts

     • More stable prices

     • Simpler

     • Pollution reduced at lowest cost—>efficient (for CT/TPs)

     • Less open to corruption

   • Emission trading scheme —

     • cap carbon China: 2011

       • very complicated and so there were delays in implementing

     • Australia 2012, faced political backlash and removed by succeeding party

     • European trading scheme

       • reduced emissions significantly, 2005-2021, greener energy

       • Initially too many permits used so many free permits to sell without reducing emissions a lot

   • Carbon tax

     • Sweden 1991,

       • emissions reduced by 25% up to 2015, not impacting GDP growth

     • UK $25/tonne of CO2

       • emissions at lowest levels, cleaner fuel used

3. Education/awareness

Overall: probities of gov- revenue eg

4. UK congestion charge—consumption

   • reduced traffic by 30% in 1st year

   • Improved air quality and

     • revenue used for public transport

5. Also consumption: SG Cert O entitlement every ten years

   • costs very high to own a car, let alone buy =, cost based on car type

     • disincentive to buy and use cars

Taxes on Negative consumption externalities

1. Australia cigarettes

   • Graphic package warnings laws 2012,

   • Taxes 65%

   • Public awareness campaigns, ads

     • fall by 5% from 2011 to 2019

2. China cigarettes

   • 50% chinese men smoke, gov run firms (chinese national tobacco company)+ very profitable

   • Contributes to tax revenue

   • But burden to economy—>healthcare

3. Sweets

   • /UK nudge policies—> back of stores and banned from checkout

     • Sugar tax

       • regressive, PED, but low price but addictive

   • Norway sugar tax— 83% on sweets in 2018, 42% bevs

     • sugar consumption fallen significantly (by ½ since 2000)

     • But cases of cross border shopping to evade tax+ also tax revenue for gov: cross border revenue increases

     • Lay off staff—> unemployment

4. Rwandan plastic bags

   • banned production, use and importation

     • very clean, reduced pollution

     • But smuggling of bags

Public goods

1. London street light 2007

   • LED lights increase Safety and reduced energy

     • reduced crime rates for well lit areas—> merit , non-ecl, non-riv

2. Sweden waste collection 2015

   • recycling waste, only 1% in landfills, publicly funded

3. US military

   • spending OPP cost significant

   • Hard to place value— surveys to ask people but still not accurate—> may over or under perceive the benefit

Common pool resources

1. Amazon deforestation 2000-

   • illegal logging, ranching,

   • Monitoring of activities,

     • OPP cost

   • Gov operations: green Brazil: Military forces

     • Increased after some time due to weak enforcement

     • loss of biodiversity and climate change ,

2. Overfishing North Sea 1990-

   • unsustainable practices

     • EU: common fisheries policy, quotas and sustainability measures,

       • stocks partially recovered initially poorly enforced

3. California water management 2014

   • Overuse for agriculture —depletion

   • Legislation: sustainable groundwater act passed 2014, regulates usage

     • improved monitoring and less over use

     • Enforcement weak+ OPP cost

4. Nepal 1970s community forest management

   • (self governance?)

     • allowed communities to set rules

       • forest cover increased in many areas

PED/ YED for producers

Fixed vs floating exchange

• degree of certainty

  • More certainty , plan future investments, sale of g/s, government planning, international trade overall

  • Less certainty —> large/abrupt changes cause issues, crises,

• Forex reserves

  • Needs supply to maintain fix, concern if not

  • No need — only market forces

• Inflation

  • Have to use fiscal policy to maintain low inf;action becuase depreciation wont occur with inflation

  • If relative infl higher → CA deficit, depreciation correction. But cause CPI imports

• Policy maker flexibility

  • No — need to maintain.. interest rate , borrowing, contractionary, trade protection

  • Policy dont need to respond to bop

• Speculation

  • Limited,

  • Destabilising

Monetary union /EU

Advantages

• exchange rate uncertainty and risk less

• Price transparency /comparison

• Transaction costs (1% of GDP EU saved)

• Promote inward investment

• Lowe interest rates, more investment, increased output

  • Croatia

    • Tourism benefit within EU,

    • Increase population through immigration — reduce costs of working

Disadvantages

• loss of domestic monetary policy — own policy objectives

• CB single policy affect each country different

  • 2011 controversy, increased interest rates due to inflation energy concern , but worsened problems in Greece and Spain ,

    • Quickly reversed, 2011-13economy too fragile →but shows the individual harm - entails, much harder and take longer to decisions coordinating so many counties

• Loss of exchange rate mechanism

• Convergence requirements limited fiscal policy

  • Croatia

    • Can’t competitive depreciate

    • Cause increase in price (one time tho) boom in house prices due to lower relative interest rates