Feel free to suggest! ~ this doc will be unavailable to edit from May 2nd 00:00hrs GMT to prevent
academic misconduct. :)
Good luck everyone!
CHAPTER 3: ELASTICITIES
Price Elasticity of Demand (PED)
Inelastic (0<PED<1): Cigarettes, Sugar, Salt (Necessity Goods) (cigarettes aren’t a necessity good)
Elastic (PED>1): Tesco bread, Luxury cars (Luxury Goods)
Cross-Price Elasticity of Demand (XED)
Substitutes (XED>0): Pepsi-Cola and Coca-Cola
Complements (XED<0): Peanut butter and bread, Chips and dip, skis and ski boots
Income Elasticity of Demand (YED)
Normal Good (YED>0): Organic Food
Inferior Good (YED<0): Second-hand goods, supermarket-branded goods
Income Elastic (YED>1): Luxury cars, Tourist experiences (overseas holidays)
Income Inelastic (YED<1): Necessary foods (e.g. sugar, potatoes, etc.), Agricultural products in general
Price Elasticity of Supply (PES)
Inelastic (0<PES<1): Agricultural products (e.g. milk, rice)
Elastic (PES>1): Manufactured products (e.g. cars)
CHAPTER 4: GOVERNMENT INTERVENTION
Indirect (Excise) Taxes
Specific Tax: Cigarettes, Mexico’s soda tax → in 2013, a one-peso per liter tax on sugary beverages
(soda drinks)
source: https://www.wired.com/2015/07/mexicos-soda-tax-working-us-learn/
‘Fat Tax’ in India on junk food in 2016
Sugar Tax’ on soft drinks in the UK in 2017
Ad valorem Tax: 6% GST in Malaysia (since April 2015), about 10% in USA, and 20% in UK (since
2011)
Subsidies
❖ Taxi drivers in Taiwan can receive NT$115,000 if they switch their old taxis to hybrid cars
❖ RM1.35 subsidy on 1kg of wheat flour
❖ Malaysia removed RM8.25 per bag subsidy on 25kg wheat flour packets raising price to RM42
❖ US Cotton producers receive huge subsidies. US is number one cotton exporter due to this.
Price Controls
Price Ceiling: Malaysia sets RM2.50 as the ceiling for 1kg of cooking oil packets
“In 1979, for example, the United States fixed the price of gasoline at about $1.00 per gallon. If the
market price had been $1.20, a driver who bought ten gallons would apparently have saved $.20 per
gallon, or $2.00. But if the driver had to wait in line for thirty minutes to buy gasoline, and if her time was
worth $8.00 per hour, the real cost to her was $10.00 for the gas and $4.00 for the time, an overall cost of
$1.40 per gallon. Some gasoline, of course, was held for friends, longtime customers, the politically well
connected, and those who were willing to pay a little cash on the side.”
Source: http://www.econlib.org/library/Enc/PriceControls.html
Price Floor: Foreigners can only buy property above RM2 million in the state of Penang, and above RM1
million in mainland Malaysia
CHAPTER 5: MARKET FAILURE
Negative Externalities
Production: Coal stations, coal powered factories (esp. in China!)
Consumption: Cigarettes, alcohol - causes violence
Demerit Goods: Cigarettes, vodka
Positive Externalities
Production: Medicine, firms that engage in training their staff, firms that do R&D, Honey - bees help to
pollinate other plants
Consumption: Education, vaccines
Merit Goods: Education and health care, museums
Public Goods
Street lights, Traffic lights, Road signs, Light houses
Common Access Resources
Oceans for fishing and forests
Asymmetric Information
The most common example is selling of cars. If a car is purchased for $25,000 and if the consumer sells
the car almost immediately after purchasing the car, the value will drop of the car. This is because the
buyers may believe that there is something wrong with the car even if it is brand new. The seller has more
information than the buyer and the buyer has only ‘trust’ on the seller to give them full information.
Another example is of the firm Lloyds. They’ve had five charges against them for mis-selling pensions
due to not providing complete information:
1. They did not offer all benefits to pensioners
2. They did not have a system to receive all relevant facts about the customers’
3. They failed to ensure that the customers had all required information to carry out a balanced and
informed decision
4. Lloyds did not always provide illustrations of a personal pension which could be compared on a
like-for-like basis with the employer's pension scheme
5. Lloyds did not always advise customers that a personal pension might not result in as high a
pension as could be expected by remaining in their employer's pension scheme.
CHAPTER 7 (TOTF II): MARKET STRUCTURES
Perfect Competition
Agriculture (e.g. rice or wheat)
Monopoly
Nationalized: Tenaga Nasional Berhad (TNB): electricity provider in Malaysia
Cardiff Airport was purchased by the Welsh Government from its private owners for £52 million.
Natural: Same, sports leagues, public transport, metro lines especially
Private Regulated: Microsoft, AB inBev - world’s largest brewery: Budweiser, Corona, Stella Artois
Monopolistic Competition
Hairdressers, Gas stations, chinese(any really) restaurants,
Oligopoly
Cartel: OPEC (Organization of the Petroleum Exporting Countries)
Tacit: In 2014, EDF is one of the big six energy companies under investigation by the UK Competition
and Markets Authority over whether consumers are being unfairly treated as a result of coordinated price
increases
Price Discrimination
1st degree of price discrimination: Charging different prices based on customer
2nd degree of price discrimination: When buying more leads to a smaller price
3rd degree of price discrimination: Charging different prices based on location or age (ex: cinema and
museum tickets)
CHAPTER 12: DEMAND AND SUPPLY SIDE POLICIES
Fiscal Policy
Expansionary: the American Recovery and Reinvestment Act of 2009 -- midst of the Great Recession
and totaled $831 billion → infrastructure, education + extension of unemployment benefits (based on
Keynesian model)
❖ Impact on employment: saved about 2 million jobs
❖ Impact on inflation: -2% to 2%
❖ Impact on equity: unknown
❖ Impact on growth: increased by 0.2%
Contractionary: Bill Clinton raised income taxes from 28% to 36% for those earning more than
$115,000. Corporate tax also increased from 34% to 36% for corporations with incomes over $10 million.
Changed welfare so that Americans could only receive it for up to 5 years; reduced those eligible by twothirds. (1992 - 2001)
❖ Impact on unemployment: from 5% to over 6.5%
❖ Impact on inflation: 6.5% to about 3%
❖ Impact on equity: unknown // but should be more equal distribution of income since richer paying
more taxes
❖ Impact on growth: maintained at about 3%
Monetary Policy
Expansionary: (unsuccessful) Japan’s Lost Decade (1990 - 2000) -- dropped their interest rates to 0.5%
for much of the 90s but it did not stimulate the economy
❖ Impact on unemployment: 2% in 1990 to almost 5% in 2000
❖ Impact on inflation: 4% to below 0%
❖ Impact on equity: dunno
❖ Impact on growth: 3% in 1990 to 0% in 2000
➢ Unsuccessful bc monetary not helpful during recession, which was the case in 1990 -- it
was stagflation actually so monetary policy cannot tackle supply-side issues
Expansionary: ECB lowered interest rates to 0.00% in 2016
❖ “The European Central Bank delved deep into its remaining arsenal of stimulus options today. It
cut all three of its interest rates and expanding asset-buying to boost the economy and prevent
ultra-low inflation becoming entrenched. In moves that initially pushed the euro 1% down against
the dollar before recovering, the ECB cut its deposit rate deeper into negative territory and
increased monthly asset buys to €80 billon from €60 billion. This was above market expectations
of an increase to €70 billion. While the deposit rate was cut 10 basis points to 0.4%, the main
refinancing rate was reduced to zero from 0.05% and its marginal lending rate – used by banks to
borrow from the ECB overnight – fell to 0.25% from 0.3%. Hoping to boost lending,
consumption and inflation, the ECB said it would also start buying corporate debt and launch four
new rounds of cheap loan packages, to be extended by banks to the real economy.”
Contractionary: 0.75% to 1% interest rates in USA in March 2017 due to consumer and labor market
confidence in the economy
Contractionary: During 1970s stagflation in ‘Murica, Feds raised interest rates from 5.75% to 13% in
order to reduce inflationary pressures. Resulted in increased unemployment but reduced inflation
Interventionist Supply-Side
ARRA is technically interventionist as well bc it tackles both increased provision of infrastructure and
increased education (increases the quality of human capital)
Market-based Supply-Side
Encouraging Competition:
❖ Privatization:
❖ Deregulation:
❖ Private financing of public sector projects:
❖ Contracting out to the private sector:
❖ Restricting monopoly power:
❖ Trade liberalization: According to IMF, Countries that have opened their economies in recent
years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty
reduction. On average, those developing countries that lowered tariffs sharply in the 1980s grew
more quickly in the 1990s than those that did not.
➢ Source: https://www.imf.org/external/np/exr/ib/2001/110801.htm
Labor Market Reforms:
❖ Lowering/Abolishing minimum wages:
➢ Five developed nations that have no legal minimum wage are Sweden, Denmark, Iceland,
Norway and Switzerland.
➢ If we compare the levels of unemployment in these countries with E.U. countries that
impose a minimum wage, the results are clear. A minimum wage leads to higher levels of
unemployment. In the 21 countries with a minimum wage, the average country has an
unemployment rate of 11.8%. Whereas, the average unemployment rate in the seven
countries without mandated minimum wages is about one third lower — at 7.9%. (CATO
Institute, 2014)
❖ Weakening the power of labor (trade) unions: 1980s Britain, Prime minister Margaret Thatcher
defeated the Mineworker’s Union and privatized the industry, leading to greater efficiency in the
sector.
❖ Reducing unemployment benefits:
❖ Reducing job security:
Incentive-related Policies:
❖ Lowering personal income taxes:
❖ Lowering business taxes:
The space here isn’t unnecessary; it’s a page break because this first part is mostly examples I found and
created whereas the table in the next few pages is someone else’s work, and I’m fairly OCD about
organizing docs so like I want a table to be on a separate page. :) ~ bunnysanni
/u/RaivatShah
Chapter
Real Life/Cooked Up Examples
1: Foundation in Economics
Adam baba ki Jai
Possible Diagrams
PPC (Capital Goods vs
Consumer Goods)
2: Demand and Supply
The primary forces
3: Market Equilibrium:
Newton’s 1st law for Demand
and Supply
4: Elasticity
Think of demand and supply as
rubber bands
Inelastic: Cigarettes ( Habit
forming good)
Elasticity graphs
Pulse Candy (Raivat’s micro
econ IA)
Elastic:
Unit Elastic:
5: Indirect taxes, subsidies and
price controls
So direct in application
Indirect taxes:
Subsidies: lpg gas cylinder
Article : Subsidised LPG price
hiked by Rs 1.93 per cylinder
Price Minimum: In India there is
a MSP (Minimum Price support)
on 25 crops currently
Article: MSP
Price Maximum:
6: Costs, Revenues & Profits
My fav, you c’s.
Why size matters in the Primary
Sector - A real world example
from Alberta, Canada.
http://bit.ly/farmincn
American state universities
moving towards diseconomies of
scale - An example from the US.
http://bit.ly/usunilow
Indian IT moving towards
something unprecedented - An
example from India.
http://bit.ly/tcsexample
7: Perfect Competition
Watermelon Industry in
Market failure graphs
Let’s be fair and equal.
Shanghai in October Watermelons become abundant
in this season and are priced
relatively lower than other 11
months of the year. Anyone with
a field truck can drive to the
suburbs and bring in
Watermelons. The prices are the
same, the watermelons are the
same and you can find a truck
every 500 meters.
Most agricultural products
8: Monopoly
I’m the boss
Indian Railways - The sole
provider of railway services in
India, it is a natural monopoly
that has existed since 163 years
(natural)
9: Monopolistic competition
Derived out of Perfect
competition
Jewellery Industry in India.
Gold, Diamond and other
ornaments are offered with
product differentiation and
known as non-price competition.
One firm cannot affect the total
industry supply. There are many
players in the industry.
However, significant barriers to
entry do exist
Another common examples are
restaurants in a clustered area.
(Recall the example of a sushi
restaurant)
10: Oligopoly
The existence of
interdependence and price
rigidity
Non-Collusive - Indian Telecom
Industry with 4 large players
Collusive (Formal) - OPEC. (An
example of a cartel).
Tacit Collusion (Informal) Milk industry in Ahmedabad
11: Price Discrimination
Why why? Why be equal. When
a producer sells the exact same
product to different consumers
First-Degree (Elimination of
Consumer Surplus) - Traders in
a School street market
Monopoly graph;
Natural Monopoly graph
at different prices.
Second-Degree (By quantity
purchased)
Mobile phone companies
(calling and texting plans)
Third-Degree (By relative PED
& different market segments)
- Movie tickets for
children and adults.
-
-
-
-
12: Market Failure
All fail except for the ‘perfect’
competition
Special interest rates for
NRIs and Senior
Citizens in India
University fees for
domestic and
international students
Sightseeing fees for
international and
domestic tourists
The Twin City Liner in
Austria
Negative Externalities of
Production - Factories polluting
nearby community areas. (Eg.
Dumpyard in Ahmedabad) and
Jeans factory. (Damage to Land
& Capital Infrastructure - 2
FOPs).
Positive Externalities of
Production - Training of pilots
by Air India. (Improvement in
Labour - an FOP)
Negative Externalities of
Consumption
Smoking of cigarettes and
alcohol (leading to higher crime
rates and thus lower HDI).
Positive Externalities of
Consumption
Healthcare & Education.
13: The level of overall
economic activity
14: Aggregate Demand
15: Aggregate Supply
16: Macroeconomic Equilibrium
17: Low Unemployment
Singapore: 2%, at national rate
of unemployment (full
employment level of output)
18: A low and stable rate of
Inflation
19: Economic Growth
20: Equity in the distribution of
Income
Finland has a gini coefficient of
0.25, South Africa has 0.6.
21: Why do countries trade?
22: Free trade and protectionism
-
-
23: Exchange rates
24: Balance of payments
25: Economic Integration
26: Terms of trade
‘Overspecialization’ Eg.
Saudi Arabia trying to
reinvest aramco’s capital
EU banned US beef in
1990s due to it being
treated with hormones