Eco
Negative Consumption Externalities
UK (2016)
Problem: Soft drinks contribute to high sugar intakes among children and teenagers, fueling obesity crisis.
Solution: tax on sugary drinks.
Singapore (2014)
Problem: Growing consumption of alcohol (a demerit good).
Solution: Increase liquor tax by .
Ireland (2010) — Negative Production Externality
Problem: Pollution imposes significant costs on society.
Solution: Ireland enacted a carbon tax in 2010 covering nearly all fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s CO2 emissions.
France (2015) — Negative Consumption Externality
Problem: Air pollution from vehicles imposes significant costs on society.
Solution: Vehicle restrictions in Paris and other cities in Northern France to combat pollution.
Common Access Resource / Negative Externality
Australia
Problem: Tourism and rising demand for coral, plus pollutants from boats and nearby hotels/resorts, damaged coral reef habitats; threat to the Great Barrier Reef’s sustainability.
Solution: Educating tourists on the ecological importance of the coral reef and managing recreational activity (restricting access, strict licensing).
Positive Consumption Externalities
New Zealand
Problem: Underallocation of resources toward vaccination.
Solution: Under the National Immunisation Schedule, vaccines are offered free to babies, children, adolescents and adults.
Hong Kong (2016)
Problem: Cervical cancer rising; young women in low-income families lack access to vaccinations.
Solution: HPV vaccinations subsidized for young women in Hong Kong.
Nigeria (2016)
Problem: Large segments of the population face barriers to accessing adequate health care.
Solution: World Health Organisation (WHO) provides vital health services, including immunisation, maternal, child and neonatal health, and HIV services.
Subsidies
Thailand (2011)
Problem: Domestic rice farmers suffer from low prices.
Solution: Prime Minister Yingluck implemented a rice subsidy policy buying up rice harvests at fixed prices, sometimes up to higher than global market prices.
Additional evaluation: The subsidy scheme was costly and ineffective at helping poor farmers; fluctuations in market prices and mismanagement of stockpiles led to losses estimated to be worth between $4bn-$17bn.
China (2016)
Problem: Energy bottlenecks and power shortages; up to 2012.
Solution: Heavy subsidies — production subsidies, capital subsidies and investment in energy projects.
Price Controls
India (2016) — Price Ceiling
Problem: High surge in prices paid by consumers using transportation and ride-sharing services (e.g., Uber) during peak demand.
Solution: Price ceiling on Uber rides.
Consequences: Shortage of available drivers, longer wait times, deadweight loss.
Vietnam (2014) — Price Ceiling
Problem: Surge in the price of milk powder from 2008-2014.
Solution: The Ministry of Finance set ceiling prices on 25 milk products in 2014.
Rent Control
Germany (2014)
Problem: Housing shortages and rising population put strain on housing market; rents rising steeply.
Solution: Rent control — private landlords taking on new tenants can raise rents by up to above the local average for similar properties.
Indirect Taxes
Malaysia (2014)
Problem: Government seeking additional revenue to offset budget deficit and reduce dependence on Petronas (state-owned oil company).
Solution: Goods and Services Tax (GST) levied on most transactions in the production process.
Cross-Price Elasticities — Complements
Example: BMW and Louis Vuitton
They collaborated to create a sports car with exclusive luggage that fits into the car, illustrating complementarities in consumption and marketing strategy.
Demand and Supply
2016
Problem: Oversupply of oil led to oil prices plunging to as low as .
Solution: Oil producers cut back on production.
Monopoly
De Beers
Problem: Near monopoly as a trader of rough stones; able to maintain and raise diamond prices by regulating supply.
Solution: Increasing competition from entry into the diamond industry, along with stringent antitrust laws, weakens De Beers’ market power; De Beers could not maintain monopoly in a more competitive environment.
Macroec onomics Real-Life Examples
Low Economic Growth
Japan
Problem: Economic growth in 2015 was ; growth stagnant in the first two quarters of 2016.
Cause: Falling exports and weak corporate investment.
Government solution: Fiscal stimulus (increased infrastructure spending) and expansionary monetary policy (lowering interest rates to reduce currency value and boost exports).
Finland
Problem: Economic growth in 2015 was .
Cause: Low productivity growth, weakening export competitiveness.
Government solution: Expansionary monetary policy (lowering interest rate to reduce currency value and boost exports).
High Inflation Rate
Angola
Problem: Year-on-year inflation rate as at July 2016 is .
Cause: Depreciation of the national currency increases import prices, pushing overall prices higher.
Government solution: Contractionary monetary policy (higher interest rate to encourage saving and reduce spending; currency appreciation can lower import prices).
Ghana
Problem: Inflation rate in 2015 was .
Cause: Depreciation of the local currency (cedi) raises import prices, contributing to cost-push inflation.
Government solution: Monetary policy tightening.
Deflation
Lebanon
Problem: Deflation rate was in 2015.
Cause: Currency pegged to the dollar; dollar appreciation makes exports less competitive; weak domestic demand reduces aggregate demand.
Government solution: Monetary policy constrained by exchange-rate target; expansionary fiscal policy limited by high debt.
Zimbabwe
Problem: Deflation rate was in 2015.
Cause: Weak consumer demand and cheap oil; US dollar usage means monetary policy is ineffective; high government debt limits expansionary fiscal policy.
High Unemployment Rate
France
Problem: Unemployment rate at in July 2016.
Cause: Euro-zone slowdown; weak business investment; stagnant labor market.
Government solution:
a) Subsidies for job creation (pay €2000 for companies that hire and retain a full-time employee for more than six months);
b) Reduce unemployment benefits to encourage work and provide vocational training;
c) Tax reductions — lower profit taxes to incentivize private investment; more investment → more employment.
Portugal
Problem: Unemployment rate in July 2016.
Cause: Austerity (government spending cuts) to meet Eurozone budget requirements.
Government solution: None for the moment; European Central Bank controls monetary policy; Eurozone restrictions prevent increasing spending and boosting the labor market.