MICROECONOMICS RELATED EXAMPLES

Examples on rent controls → maximum price application

Average free market rent for a 2-bedroom apartment in NYC $3960; rent controlled apartment $900 (from: http://online.wsj.com/articles/rent-is-too-high-candidate-runs-for-governor-again-1411178010?KEYWORDS=rent+control+new+york)

see: http://www.nytimes.com/2012/02/17/us/san-francisco-rent-control-and-unintended- consequences.html?module=Search&mabReward=relbias%3As%2C%7B%221%22%3A%22RI%3A8%22%7D Very interesting bits of info, like: ‘…5 percent of the city’s 212,000 rental units (about 10,600) are kept vacant by landlords who would rather not deal with rent control’, or, ‘…with an estimated 30 percent of the city’s rental properties owned by mom-and-pop investors with four units or less, an unintended consequence of rent control is becoming more prevalent: people of relatively modest means subsidizing the housing of the extraordinarily wealthy.’

To evict a downstairs tenant so the owners of a San Francisco house can occupy their entire two-story structure, they have been told by city officials that they need to compensate the tenant to the tune of $118,000. That payment represents the difference between what the tenant is paying for a unit protected by rent control and what she would have to pay on the free market for the next two years. See http://online.wsj.com/articles/san-francisco-tenant-protection-puts-a-price-on-eviction-1414100523?KEYWORDS=rent+san+francisco

Berlin: ‘landlords in the capital will be barred from increasing rents by more than 10% above the local average’ (see http://www.theguardian.com/world/2015/jun/01/rent-cap-legislation-in-force-berlin-germany)

Examples of maximum prices (price ceilings)

President Maduro in Venezuela has imposed price ceilings on a wide array of consumer goods from food to toilet paperSee also:http://www.nytimes.com/interactive/projects/cp/reporters-notebook/moving-to-venezuela/venezuela-currency

Examples of minimum prices

Thai rice under Thai ex-Prime Minister Yingluck: ‘…The rice subsidy (really a minimum price) was classic populism as two-fifths of Thais work in agriculture, most of them as rice farmers and Ms. Yingluck promised that, if she were elected, her government would buy rice directly from them at about twice the market rate, or 15,000 baht (about $500) per ton…

The Thai government had been forced to stockpile 18m tons of rice, equivalent to nearly half the annual global trade in rice. Buying rice from farmers cost the Thai government $12.5 billion in the first year of operation with the cost rising to about $15 billion, or 4% of GDP. Storing the rice also carries administrative and logistical costs, and demands expensive new warehouses. (from http://www.economist.com/news/asia/21583281-increasingly-unpopular-government-sticks-its-worst-and-most-costly-policy-rice-mountain)

Minimum wage laws

In Canada: average minimum wage across provinces is 10.50 Canadian dollars

In the UK for adults over 21 is 6.70 pounds per hour

In Massachusetts, US: $10.00/hour

Source: OECD May 2015

Examples of subsidies

US cotton subsidies: Subsidies are payments made by the US government to farmers. The majority are paid to large industry farms. A recent study by the International Cotton Advisory Committee estimated that over the last 9 years the US has spent over $24 billion on cotton subsidies. From http://www.traidcraft.co.uk/OneStopCMS/Core/TemplateHandler.aspx?NRMODE=Published&NRNODEGUID=%7bC59D9FE4-3939-46EA-9ACC-EDEA6980608A%7d&NRORIGINALURL=%2fget_involved%2fcampaign%2ftrade_rules%2fUS_cotton_subsidies%2fQ%2band%2bA%2bon%2bcotton%2bsubsidies&NRCACHEHINT=NoModifyGuest

Also on US cotton subsidies: Cotton subsidies and their impact on international prices and on the livelihoods of poor African cotton farmers: cotton is a critical crop for some of the world’s poorest countries, including the “Cotton 4” countries of Benin, Burkina Faso, Chad, and Mali. Because of the prominent role cotton plays in the economies of “Cotton 4” countries, a small decline in cotton prices can make an enormous difference in the ability of their farmers to pay for health care, education, and food. A good price for cotton allows farmers to boost production of subsistence crops, slows urbanization by keeping people in rural areas, and creates localized wealth in rural places that need it most. Opponents of the U.S. cotton subsidy program argue that it is trade distorting, because it results in at least a 10 percent reduction in global cotton prices. They also assert that it is a burden on U.S. taxpayers to keep afloat an inefficient industry that would not be profitable without subsidies. From: http://cip.cornell.edu/DPubS?service=UI&version=1.0&verb=Display&handle=dns.gfs/1200428204)

Examples of Indirect Taxes

tax increase in Greece VAT to 24%; specific tax of 0.20€ per liter of wine (see http://www.kathimerini.gr/839218/article/oikonomia/ellhnikh-oikonomia/efk-sto-krasi-anti-fpa-se-idiwtika )

Estimates of real short run and long run PEDs http://www.mackinac.org/article.aspx?ID=1247

Examples of (sources of) Economies of Scale

The cement industry has also significant scale economies in labor and capital usage. A United Nations study estimates that capital costs can decline more than 50 percent as capacity increases from 100,000 to 1,000,000 tons; the ten-fold increase in capacity requires only a doubling of labor.

The steel industry is similar to the cement industry: as steel production doubles, costs increase by only 5 to 10 percent. This has driven firms to both expand and consolidate. Since the early 1900s, the number of firms producing steel has fallen by a third while the portion of the market controlled by the top 4 firms climbed from 62 percent to 75 percent (4CR) over the same period. (from: http://realestate.wharton.upenn.edu/research/papers/full/358.pdf)

On the ‘container principle’ (volume rises faster than surface) and the shipping industry: ‘Aboard one of the world's largest container ships, moving almost imperceptibly through the seas off Vietnam, it's easy to appreciate the economies of scale that allow a T-shirt made in China to be sent to the Netherlands for just 2.5 cents.’ See http://www.economist.com/node/21538156;

Examples of (of sources) Diseconomies of Scale

The size and complexity of mining operations in Australia have created “diseconomies of scale” which were created when the mining industry had to increase production in response to rocketing prices. The focus on increasing output meant mines had to be larger, but simply scaling up existing structures has made them much more complex to run and resulted diminished connectivity within operations. See: http://www.businessinsider.com.au/meet-the-diseconomies-of-scale-dragging-down-the-efficiency-of-the-mining-industry-2014-10

Examples of Negative Production Externalities

‘Westerly winds’: A new scientific study found that China’s export industry is responsible for dirty emissions that are blowing across the Pacific Ocean and contributing to smog in the United States. Winds blow pollutants from Chinese power plants and factories across the Pacific in about six days, where they boost levels of smog in the United States. The study found that Los Angeles and parts of the eastern U.S. experienced at least one extra day of smog that exceeded health standards for ozone as a result of emissions from export manufacturing in China. See http://articles.latimes.com/2014/jan/20/science/la-sci-sn-china-exports-air-pollution-united-states-20140120

http://www.nytimes.com/2014/12/15/world/americas/lima-climate-deal.html

Pollution in Hebei China in pictures (with info in captions:

http://www.theguardian.com/environment/gallery/2015/jan/13/hebeis-steel-cities-chinas-pollution-crisis-in-pictures

Examples of Common Access Resources SEE other examples file!!!

Common Access Resources http://www.environmentmagazine.org/Archives/Back%20Issues/July-August%202008/ostrom-full.html

Overfishing of crab in Belcarra, Maryland (US). Overfishing is a problem that could

seriously diminish crab and other species in the area. The problem is attributed to a pair of factors: a decreased presence in the number of ‘Fisheries and Oceans’ patrols (special law enforcement officers), and the “ruthlessness” of poachers. Some are taking crabs out of the three ‘no-fishing zones’ near Belcarra. Others catch the crabs long before they reach their legal size.

See more at: http://www.thenownews.com/news/overfishing-causes-concerns-in-belcarra-1.826374#sthash.ryzJJXKL.dpuf

Jack mackerel (fish) in the South Pacific (Chile) where Greek ship-owner Laskarides is not subject to the EU quota for jack mackerel because his trawlers are flagged in the Vanuatu Islands Need for international cooperation…

Excellent explanation and evaluation of TRADABLE FISHING QUOTAS here:

http://www.forbes.com/forbes/2003/0428/040.html

On International Cooperation

PARIS December 2015 agreement on Climate Change:

http://ec.europa.eu/clima/policies/international/negotiations/paris/index_en.htm

“…At the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal.

The agreement sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2°C above pre-industrial levels”

Examples of Negative Consumption Externalities / demerit goods (drinking / smoking)

Excessive alcohol consumption cost the United States $249 billion in 2010, or about $2.05 per drink.  External costs largely resulted from losses in workplace productivity, health care expenses for problems caused by excessive drinking, law enforcement and other criminal justice expenses related to excessive alcohol consumption and motor vehicle crash costs from impaired driving. See: http://www.cdc.gov/media/releases/2015/p1015-excessive-alcohol.html

From the Institute of Alcohol Studies (UK): ‘alcohol-related harm is now estimated to cost society (England) £21 billion annually’; these costs break down into:

o NHS (Health services in the UK) costs, at about £3.5 billion per year (at 2009–10 costs)

o Alcohol-related crime, at £11 billion per year (at 2010–11 costs)o Lost productivity due to alcohol, at about £7.3 billion per year (at 2009–10

costs, UK estimate) Minimum price on unit of alcohol as a solution (England): According to research,

introducing in England a minimum price for alcohol would lead to 860 fewer deaths a year and 29,900 fewer hospital admissions among heavy-drinkers while having only a slight effect on moderate drinkers. The study predicts that making stronger drinks more expensive, through a price of minimum price of 45 pence per unit of alcohol, would impact those who drink most heavily and are on low incomes. They would reduce their drinking and reap a health benefit, with fewer alcohol-related deaths and illness. See http://www.theguardian.com/society/2014/feb/10/minimum-alcohol-pricing-save-860-lives-study

and http://www.gov.scot/Topics/Health/Services/Alcohol/minimum-pricing#

and, http://www.wsj.com/articles/raise-alcohol-tax-to-boost-economic-output-says-oecd-1431427413

Examples of Positive Consumption Externalities (merit goods)

Private benefits of acquiring (university) education include the greater earning capacity that those with university education typically enjoy; the lower probability of becoming unemployed; the shorter duration of unemployment for university graduates; the benefit of expanding one’s horizon with more knowledge; the higher probability of living in a safer and more affluent neighborhood etc.

Beyond the private benefits of higher education are the external benefits. There are contributions to democratic institutions, human rights, political stability, lower state welfare costs, lower health care costs (as prevalence of smoking is typically lower), lower public incarceration (prison costs) costs, contributions to the generation of new ideas, greater willingness to do volunteer work etc. A more educated population contributes to faster rates of innovation and thus faster growth. From: http://www.philadelphia.edu.jo/centers/iro/The_private_and_social_benefits_of_higher_education.pdf

also the quadrant approach (Private and external; economic & social) from here:https://www.gov.uk/government/publications/benefits-of-participating-in-higher-education-key-findings-and-reports-quadrants

Examples of Pigovian tax (and maybe PED/tax incidence example)

http://www.bbc.com/news/business-26617722Carbon Tax, known as Carbon Price Floor, imposed on pollutive UK firms with the aim of forcing them to internalize the external costs of pollution they produce. Another goal was to encourage investment in green energy. The problem however is that it is electricity industries that are the most pollutive and, since electricity has a very low PED as it is characterized by a high degree of necessity, the electricity consumers were burdened by a higher price due to the carbon tax as the most significant amount of the tax was passed by UK electricity firms to consumers

Examples of Tradable Pollution Permits (Cap & Trade)

from http://ec.europa.eu/clima/policies/ets/index_en.htm

Example of anti-competitive behavior and abuse of monopoly power (of dominant position)

Athenian Brewery – anticompetitive behavior:

http://www.kathimerini.gr/840726/article/oikonomia/epixeirhseis/prostimo-314-ekat-sthn-a8hnaikh-zy8opoiia-apo-ep-antagwnismoy

Google vs. EU (Vestager- the competition commissioner) note the size of the fine as a ‘response’ to abuse of monopoly power…see:

https://www.theguardian.com/technology/2016/apr/20/eu-commission-google-android-skew-market-competition-antitrust-vestager

and

http://www.theguardian.com/business/2016/jan/28/margrethe-vestager-eu-competition-commissioner-google-tax-deal-uk-government

Examples of collusive behavior

http://www.bbc.com/news/business-35419762 Mitsubishi Electric and Hitachi have been fined €137.8m (£105m) by European Union regulators for price fixing. The penalty is for fixing the price of car alternators and starters. According to EU Competition Commissioner Margrethe Vestager, the companies met at each other's offices and restaurants to skew prices between 2004 and 2010. "Breaking cartels remains a top priority for the Commission, in particular when they affect important consumer goods, such as cars," she said. "Today's decision sanctions three car part producers whose collusion affected component costs for a number of car manufacturers selling cars in Europe, and ultimately European consumers buying them.

http://online.wsj.com/news/articles/SB10001424052702303595404579318123703297520

Germany: From 2006 to 2008 price fixing among brewers resulted in a price increase of between €5 and €7 per 100 liters of draft beer. In 2008, the collusion increased the price of a 20-bottle case of beer by €1. Eventually the colluding firms were caught by a ‘whistle blower’ who benefited as it was not fined at all.

http://europe.newsweek.com/too-lenient-france-yoghurt-makers-embroiled-cartel-scandal-313767

France, yogurt producers; Prof. Harris (‘only 10%-15% of collusive agreements are uncovered”!!!) etc.

http://online.wsj.com/news/articles/SB10001424052702304444604577337573054615152In an antitrust lawsuit, the US Justice Department claimed that CEOs of 5 publishing companies met regularly in private dining rooms of upscale Manhattan restaurants to discuss how to respond to steep discounting of their e-books by Amazon.com. The 5 publishers and Apple formulated an arrangement that lifted the price of many best-selling e-books to $12.99 or $14.99, according to the lawsuit. The publishers then banded together to impose that model on Amazon, the government alleged. According to the suit, none of the publishers could, individually, force Amazon to accept the new arrangement. A single publisher risked being dropped by Amazon and might lose sales if it was the only one to raise prices.

Amazon: A firm with a ‘deep pocket’ (so could afford losses) controlling the greatest market share in e-book market by setting low prices as a firm created barrier (limit pricing) in order to prevent other firms from entering.

Car parts US: http://www.nytimes.com/2013/09/27/business/9-auto-parts-makers-plead-guilty-to-fixing-prices.html In an expanding global antitrust investigation, nine Japanese automotive suppliers, along with two former executives, have agreed to plead guilty to conspiracy and pay more than $740 million in criminal fines for fixing the price of auto parts sold

in the United States and abroad, the Justice Department said.

Examples of Price Wars-Non collusive behavior

US cell phone services providers are engaged in a price war: T-Mobile; Verizon; ATT; Sprint

see: http://www.ibtimes.com/wireless-price-wars-consumers-win-verizon-t-mobile-sprint-att-battle-subscribers-1749969

UK supermarkets: Morisson’s, Tesco, Sainsbury’s and Asda (as a result of the entrance of the low cost competitors Aldi and Lidl in the UK)

See: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11327386/Asda-kicks-off-new-supermarket-price-war.html and http://www.mirror.co.uk/money/personal-finance/supermarket-price-wars-means-families-5093020

Examples of natural monopoly

Theory (very good) and examples: http://www.economicsonline.co.uk/Business_economics/Natural_monopolies.html

Examples of price discrimination

Amazon: For the same watch, Amazon’s ‘Prime’ members (who enjoy free shipping for an additional $79 membership fee), end up paying more compared to non-members even if you factor-in shipping costs! Amazon ‘Prime’ members have a lower ped as they are ‘locked-in’ to shopping from Amazon, given the $79 annual fee they’ve paid! Read this for some detail:

https://brightviolet.wordpress.com/2010/05/18/amazon-coms-price-discrimination-how-your-amazon-prime-membership-isnt-such-a-good-deal-after-all/

MACROECONOMICS RELATED EXAMPLES

Examples of Unemployment (Latest Statistics: 2nd Quarter of 2015)

Greece: QII 2015: 24.6%

BUT:

Youth unemployment (15-24): 49.5%

Gender differences: males: 21.5%; females: 28.3%

Non-Greeks vs. Greek nationals: 29,6% vs. 24,1%

Regional differences: Highest unemployment rate in Western Macedonia (30,1%) while lowest rate in Northern Aegean (13,4%)

US Unemployment path:

But, according to Prof. Stiglitz, a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3% instead of 5.5%.

Examples of Cost-Push Inflation

Philippines; El Nino: weather: drought: adverse effect on agricultural production:

Examples of Demand-Pull Inflation

Brazil: 12.75% (in May 15) as a result of years of loose fiscal policy: of profligate government spending

Examples of  Deflation

Eurozone Consumer Prices Fall for First Time Since 2009, Adding to Deflation Fears

http://www.nytimes.com/2015/01/08/business/international/europe-economy-deflation.html?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news&_r=0

Deflation in UK (March 2015)

In April 2016 at +0.3%

Example of disinflation

The Philippines were going through a period of disinflation as the inflation rate from 4.6% in 2011 to 3.0% in 2013

Inflation this year (2015) in the Philippines is now expected to average 2.3% from 2.2% previously, while inflation in 2016 is projected at 2.6 per cent ( see the effect of the El Nino on cost-push pressures above)

Fiscal stimulus vs austerity

http://www.economist.com/news/schools-brief/21586802-fourth-our-series-articles-financial-crisis-looks-surge-public

This stimulus amounted to 2% of GDP on average among the members of the G20 club of big economies. Among Barack Obama’s first steps as president in 2009 was to sign the American Recovery and Reinvestment Act, a stimulus plan worth $831 billion, or almost 6% of that year’s GDP, most of it to be spent over the next three years.

Quantitative easing

http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-50

Japan Kuroda (BoJ Governor): dealing with deflation in Japan:

Why may a deflationary gap be experienced?

case of Greek debt crisis that forced Greek Government to slash government expenditures and raise taxes decreasing AD

case of a world financial crisis that led to lower exports in export oriented countries like Germany and China, lowering their AD curves and creating a deflationary gap

for some, case of PM Cameron of UK if he insists on employing ‘austerity’ (lower G and higher T) in conjunction with tight monetary policy by BoE may lead to lower AD and a deflationary gap

Deflation in Greece

Deflation started in March 2013

Highest deflation in November 2013 at -2.9%

In December 2015 after 33 months of deflation, the inflation rate was positive at 0.4%!!!

But, in January 2016 it turned again negative at -0.1%

To fight deflation:

Since interest rates are effectively zero, the ECB and the BoJ have used QUANTITATIVE EASING (they buy from commercial banks bonds to increase their cash reserves and induce them to lend more).

But:

The ECB and the Bank of Japan are now considering Friedman’s HELICOPTER MONEY DROP i.e. direct cash transfers to all consumers (NOT through Banks) since QE does not force banks to lend (they may speculate in the foreign exchange market)

These direct cash transfers may even have an expiry dte to make sure people do not save it but spend it

See:

http://www.economicshelp.org/blog/5937/economics/helicopter-money-drop/

https://www.weforum.org/agenda/2015/08/what-is-helicopter-money/

Monetary policy in action with respect to growth vs. inflationary pressures

Brazil: after loose fiscal policy during Pres. Rousseff’s first term, they are now employing contractionary fiscal (deficits widened) and tighter monetary (inflation accelerated): read about the short term and the possible long term effects of this policy shift:

Multiplier, significance of:

‘Mea culpa’ by IMF’s Olivier Blanchard on the underestimation of the multiplier in the case of Greece:

See:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/03/an-amazing-mea-culpa-from-the-imfs-chief-economist-on-austerity/

Christina Romer and the estimate of the US multiplier

Romer, the Chief Economist of the US Council of Economic Advisors had estimated the US expenditure multiplier at 1.6 (1.57) so that Obama’s +787billion dollar stimulus plan (i.e. increase in government spending) was estimated to lead to an increase of $1259.2billion.

Development

On Brazil, role of markets and of the State:

http://www.nytimes.com/2016/05/04/business/economy/populist-policies-let-brazils-tomorrow-slip-away.html?emc=edit_ee_20160504&nl=todaysheadlines-europe&nlid=72425309