Microeconomics RWE Flashcards
(31 cards)
(In)elastic PED
Drugs, Luxury Goods
(In)elastic YED
Bread, Luxury Goods (Cars / Houses)
Competitive supply
Farmers Planting carrots or potatoes as crops
Joint supply
Petrol and Heavy oil (by-products)
Long Short-run
Electricity companies (power plants or electricity grid)
Short Short-run
Pressure washing company (cheap capital)
(In)elastic PES
In the short-run tickets for a concert, supply of wheat globally as long you as willing to pay the current world market price
Negative externality of production tax
Uruguay’s carbon tax of $167 per metric ton of CO2 as of April 2024 but was introduced in 2022 and allowed an average GDP growth from the previous 5 yrs of near 0% to increase to 4% due to more government revenue etc
Subsidy
UK government £265m into renewable energy source in 2021 which is estimated to provide 60,000 more jobs in the offshore wind sector by 2030 and was projected to attract around £20bn in private investment however has now in 2024 left them with a tighter budget so had to remove spending into disability transfer payments. It has also allowed more substitutes so a more competitive and elastic demand curve (decreasing price increases revenue and profit so investors look towards that) and due to renewable energy being better long term (social/political change and better technological efficiency whilst non-renewables are as efficient as they can be due to long time in market) so more investment and long-term structural change with subsidy.
Vienna €450m into Housing each year allowing approximately 60% nowadays of the population to live in subsidised housing
Max price
The G7 set a max price on Russian oil as of December 2022 in order to reduce their revenue as a sanction for invading Ukraine. In the short-term this decreased Russia’s oil revenue by around $150m daily but there were issues with compliance as alternative bypassing routes were produced
Min price
Luxembourg had a minimum wage of €15.25 / hr in January of 2025 for unqualified workers (even higher to around €18 / hr for qualified workers) which although it increased disposable incomes, poverty rate still increased over this time (potentially due to demand for labour decreasing so more poverty as less people have jobs)
Buffer stock scheme
India’s food corporation of India have a buffer stock scheme on wheat and rice which reduced cereal inflation from 16% - 8% in the time that the buffer stock scheme was released and decreased rural inequality as rural incomes rise but needed high costs to keep high stocks
Tradable Pollution Permit scheme
The European Union emission trading scheme (EU ETS) caused a reduction in CO2 emissions of 47% in 15 years (2005-2020) whilst firms’ revenue had no significant change. All the environmental long-term benefits ; At the start there was an over-allocation of permits not only diminishing the effectiveness of the system but also causing windfall profits as companies had more than they needed so just sold (over time this has been fixed by slowly adjusting (MPC moving closer and closer to MSC allowing time for producers and not affecting profits)). There are also many industries that aren’t in the scheme - in 2023 less than 25% of airline emissions were caught in the scheme highlighting the large costs of punishing and maintaining and monitoring
Public-Private Partnership
PPP in Africa with Bridge International Academies (BIA) providing over 450 low cost private schools throughout Nigeria, Kenya and Uganda without heavy government intervention (in between of Keynes and Classical). This has allowed to break poverty trap and hence economic growth and development due to 200% better grades on same international exams so more skilled jobs etc. Lack of government intervention is huge for these countries since LIC/MICs so don’t have money to spend. High bureaucracy can cause higher than expected costs and more complex network so less efficient as well as possibly easier to have corruption hidden (although less money flow then big infrastructure projects so although higher chance less money in corruption). Fiscal Capacity for LICs is lower so less cost is better
Screening
Health insurance companies have low information on their consumers and so pay a higher price in order to cover the riskier individuals. However this increases the price for everyone and so the MPC is greater than the MSC (more to the left). In order to solve this India in 2018 used a huge database from the SECC to identify more at risk individuals and those with less risk. This allowed low income individuals to purchase health insurance (increasing by over 25% the amount of people using health insurance in India) and hence decreased health-induced poverty by 15% in this time. However errors with inclusion and exclusion meant some who needed or fell into poverty in the time after the SECC had it’s latest report weren’t included (100 million people) whilst some who weren’t in poverty were included
Signalling
In the organic food industry, producers/farmers know more about how they produced their crop than consumers and so can say that it is organic when in reality it isn’t (MPB is less than MSB so they are under consumed). This was solved by audits from third parties which put on organic certification labels (USDA Organic or EU leaf label). This lead to an increase from around $25b to around $125b in organic food sales in around 20yrs although this increased price by a minimum of 20% in that time for all organic goods but some even to 100%
Moral Hazard
Deductibles in the US with High-deductibles health programmes of deductibles up to $1000-$5000 for individuals and $2000-$10000 for households which after this deductible amount the insurance paid. However this caused unfair treatment for low-income individuals/households who didn’t have the money for this
Negative Externality of Consumption tax
in 2014, Mexico implemented a 1peso per litre tax on Sugar-Sweetened Beverages (SSB) in order to better the health of their country by decreasing sugar consumption, it also raised government revenue (generating 5b pesos - $250m in the first year) and tackled the obesity crisis in Mexico as they are one of the countries with the largest obesity rate. However, the tax was effectively regressive since low income consumers paid a higher proportion of their income on SSBs so the tax affected them more than high income individuals (20% of the poorest Mexicans spent 5% of their income on SSBs from the WB in 2017) which increased their tax burden - this led to a smaller than predicted increase in their HDI from 8.04 to 8.08 in 7 years
Corporate Social Responsibility Pros
Patagonia employ environmental and ethical practices like have employee satisfaction through very high levels of engagement and retention as well as employing sustainable practices which although led to more consumer trust and brand loyalty (and possible even higher profits than profit max in the long-term as environmental sustainability is more at the forefront of consumers minds so demand for these goods will increase) but also led to more public scrutiny due to higher expectation since their brand is built on these practices as well as higher costs so consumer surplus decreased (although community surplus increases as it accounts externalities)
Perfect competition
Wheat farmers in the EU as small relative to the size of the industry and wheat is a very homogeneous good yet more significant sunk costs so barriers to entry/exit and no perfect knowledge but closest since also in a monetary union so easier communication
Monopolistic competition
Casual Dining Restaurants have slightly differentiated goods (between cuisines or intracuisine) meaning they are price makers but there is large competition and relative small berries to entry/exit (although advertising costs are relatively high) creating almost 12,000 Italian restaurants in the UK
Monopoly (Legal barriers acting as a barrier to entry)
Pfizer had a patent for the active ingredient in Viagra in 1996 allowing them to invest heavily in clinical trials and R+D whilst other couldn’t or it wasn’t worth it due to the high sunk costs and slim chance of gaining profits of this allowing them to have huge market share whilst also increasing profits until 2013 (EU) and 2020 (USA) when the patent expired where they had no legal power and so other companies flooded the market meaning now they don’t have enough market share to be considered monopoly power
Natural Monopolies
The US railroad industry in the early 20th Century experienced high levels of competition but due to the extremely high barriers to entry/exit, profits collapsed as no single company could maintain pricing power and so many went bankrupt by the 1930s. Needing government intervention, to ensure one firm was not making profits and implementing price gauging (increase the price when consumers need it the most) since transport is so vital and a very PED inelastic good, the government intervened, ensuring the price now is at a price that maximise community surplus so is allocatively efficient
Formal collusions laws
The Sherman Antitrust act making formula collusion illegal in the US
