JC & IB Economics Real World Examples
Real World Examples in Economics will provide a deeper appreciation and understanding of the many concepts and policies taught. They help make Economics come alive and make the learning a lot more exciting and enjoyable. Imagine seeing your economic theories come alive during the season of US-China trade wars waged between Trump and Xi or witnessing how supply chain disruptions and loose monetary and fiscal policies are resulting in a problem of Inflation in the midst of Covid pandemic!
Students in Mr Hong’s classes can instantly make connections between global affairs and economic theories studied, enabling them to predict outcomes of certain events or policies enacted. Mr Hong has even shown how he could PREDICT that Vietnam would benefit from the US-China trade war. This is extremely powerful knowledge and understanding, that can be relevant. for example, to the lucrative field of forex trading!
As Calista Tan from ACS Indep noted:
“It is quite amazing to see these theories come into play and it can also help you gather real life examples for your essay writing.”
Many students find that learning real life examples helps solidify their understanding of theoretical concepts. Instead of studying Economics in a silo, it’s important to keep up-to-date with the happenings in markets and economies. This is also why the examinations require that.
For the Singapore-Cambridge A Levels, knowledge of the Singapore economy and the government policies (both Micro and Macro) are the most essential. That is why we even have 1 dedicated Economics Model Essays on Singapore book.
However, it is also important to know other examples especially involving the US, Europe and China. They can be very useful for the Essays examinations.
For the IB Diploma programme, it is essential to memorise real world examples. You must use them in Paper 1 Essays – the penalty for not including at least one per essay part (part a or b) is high; you are given a maximum of Band 2 out of 4 if you do not substantiate your arguments with real world examples. They can also be useful for Paper 2 Data Response Questions as in the event that you had previously chanced upon the topic tested in your general knowledge readings; you have additional contextual knowledge for answering the questions! If you are preparing for your Internal Assessments, then the examples will also be useful in your search for a suitable article upon which your commentary is based.
Below is a sample of economics real world examples that Mr Hong’s students will have access to. Our complete database contains examples for every sub-topic and is only accessible to existing economics tuition students. They are constantly updated and refreshed to bring about the latest and most useful examples for students. With this database in hand, one of the most arduous tasks – the compilation of real world examples for exams, which many students have to attempt single-handedly – is already done for you!
Reasons for Merger/Acquisition
Cost Savings: This merger would allow the combined company to reap significant internal economies of scale through the streamlining of production processes, reduced advertisement costs and reduced expenditure on administrative services. Such cost and revenue advantages are key factors motivating Kraft’s decision to acquire Cadbury.
Policy to tackle under-consumption of Merit Goods (Education) due to High Income Inequality
Successful Liberalisation in Singapore
As a result, the number of electricity retailers has surged, from 7 in 2013 to the 25 in 2017- a number that continues to grow.
Increasingly, consumers are introduced to a wider variety of options. Incumbent firms are also opting to produce green electricity, which incurs lower production costs in the long run. Rates for consumption during off-peak hours have also been reduced, allowing consumers to enjoy cheaper prices. These firms are now more incentivised to innovate as well, given the rising level of competition.
Market-Oriented Supply-Side Policies
Tariffs & Import Quotas
Political Hindrances to Fiscal Policy
Policy to tackle Negative Externality of Traffic Congestion arising from use of Cars – Free Public Transport
Adverse Effects of Persuasive Advertising & Policies to Address it
As a result, Singapore has seen soaring formula milk prices. In response, the Agri-Food and Veterinary Authority of Singapore will pass a legislation to prohibit labels on formula milk from making nutritional health claims, and ban idealised images. The Health Promotion Board (HPB) will also launch a public education campaign to clarify the nutritional needs of children, lowering the susceptibility of consumers to misinformation.
Policy to tackle Moral Hazard and related problems
To address this issue, the government has introduced a co-payment system for healthcare insurance, where new Integrated Shield plan riders have to bear a minimum of 5% co-payment. This creates a disincentive for overconsumption, as insured consumers will now have to bear a proportion of the cost of healthcare consumption.
Difficulties in Implementing Labour Market Reforms
Price Controls vs Price Mechanism
This is bad for both the riders, drivers, society, and leads to a deadweight welfare loss to society because of the misallocation of time, money, human capital and human potential.
Surge pricing has actually helped to eliminate the shortages during peak hours. The higher price will signal that demand is high, and thus the number of drivers will increase to meet the high demand.
In a nutshell, the price mechanism will work better, eventually allowing the market to clear, and the time consumers spend on waiting for a taxi would be shorter during peak hours. This will result in less amount of time wasted, which could be divert into productive hours and time spend on building human capital.
Min Price to correct Over-Consumption of Alcohol
Scottish ministers claim the policy will save approximately 400 lives over the next five years, as a result of a fall in alcohol consumption. It will also lead to fewer alcohol-related hospital admissions. The Scottish government has recommended that the minimum price for a unit of alcohol should be set at 50p. Minimum unit pricing will impact most on heavy drinkers. Those who drink within the lower risk guidelines will only be marginally affected simply because they only consume a small amount of alcohol and also because they do not tend to buy as much of the cheaper alcohol that would be most affected by a minimum unit price.
As a result of minimum pricing, the country will enjoy a healthier community, and thus enjoy a more productive economy. Additionally, it will also improve non-material standard of living as the country enjoy a happier, safer families and communities.
Sg’s innovative Progressive Wage Model to tackle Income Inequality
The PWM sets the minimum wage that workers in a particular occupation should be paid, pegged against a certain skill certification. Thus, this ensures that the higher wage earned corresponds to a certain level of productivity, helping to ensure that Singapore remains cost-competitive.
In addition, there is a wage progression pathway that helps to increase wages beyond the minimum amount according to attainment of skills certifications and years of experience.
However, this is currently only in place for 3 sectors - landscaping, cleaning and security. Thus, low wage workers, for example in F&B sector are still unable to benefit. Moreover, companies may pass on the cost of increased wages to consumers, in the form of price increases. This would raise the cost of living and thus hurt the low income households.
Nevertheless, since the implementation of the PWM, real wage growth of low-wage workers has exceeded resident median income growth, and this can be seen from a 4.2% rise in real gross monthly income in the former group, compared to a 3.4% rise in the latter group.
Direct & Indirect Impacts of Trade Wars
China and US could also be affected indirectly. Two-thirds of US imports from China come from companies with foreign capital, and thus US tariffs will have an impact on these firms, some of which are American. Additionally, consumer and business confidence may be adversely affected, thus leading to a fall in domestic demand and slower RGDP growth.
Other countries may also become victim of this SINO-US trade war. For instance; South Korea, Malaysia, Taiwan and Singapore are most at risks due to their trade openness. Two third of the goods traded are linked to global supply chains. Through global supply chains, the trade war could also result in a rise of Global Inflation.
Non-Inclusive Economic Growth in NZ
This could be due to a number of factors. Firstly, technological change and deregulation of labour and product markets have pushed up the incomes of the skilled people (who are usually the high-Y earners) and pushed down the incomes of the unskilled.
Secondly, it is worsened as tax has become less distributive in NZ. Both Y-tax on the higher-Y earners and welfare benefits for the poor have been lowered. Additionally, the rich usually have more power to escape the high taxes they are supposed to be paying. An Inland Revenue research said that “only about half were paying the highest marginal tax rate on their income”, suggests that there is an issue of tax dodging in New Zealand.
Furthermore, rising house prices results in landlords becoming richer while the tenants becoming poorer as they now are subjected to an increased rental fee. This can be see in how the bottom 40% households only account for 3% of the total wealth.
Profit Push Inflation
The government terminated the monopoly on the distribution of rice in Malaysia, which was held by a company called Bernas. They are also looking into the supply of medicines for public healthcare, and compulsory vehicle inspections currently controlled by Puspakom.
Due to their monopoly power, they are able to limit output and charge high prices, which have resulted in the increase in the general price level of goods & services. This is known as profit-push inflation.
Consequences of Trade Deficits
As a result, Philippines’ dollar reserves are being depleted, the peso is also weakening. Hence imports are now relatively more expensive which will further worsen trade deficits as demand for those raw materials are price inelastic.
This will also lead to imported cost-push inflation, which can be seen from its record high inflation now.
Trade deficits also often signal a poor outlook for investment and this will cause a capital outflows further worsening the KFA and BOP. This is exacerbated by the recent increase in US i/r, where investors now move their assets out into US so as to seek a higher rate of return.
Nevertheless, as Philippines is expanding its productive capacity through the massive imports of capital good and raw materials, the negative effects could be reversed if infrastructure works stimulate long-term economic growth.
Destabilising K Flows
Furthermore, as economies like Indonesia depreciates its currency to boost exports and shrink trade deficits, it becomes more difficult for the government and firms to service foreign loans, and prompts investors to pull out their money, leading to a further capital outflow.
To counter that, governments could raise i/r, but this makes it difficult for homebuyers and firms to service their mortgage and business loans. Hence, the economy slows down, which leads to more capital outflows and the cycle repeats.
To make matter worse, US is raising their i/r as they undergoes quantitative tightening. As such, investors are now returning to US for a higher rate of return.
Such K outflows further dampens economic growth and can lead to currency and BOP crises. As such, Indonesia is raising tariffs to 10% on over 1000 goods in a move to reduce the import bill.
Legislation to tackle Negative Externality
Singapore has chosen to implment various rules and regulations such as licensing bike sharing operators who are subjected to a quota on the number of bikes they can operate as well as amount of time operators have to remove illegally parked bicycles.
These policies appear to be very effective as sights of bikes being indiscriminately parked is rare these days.
Debt fuelled EG is not sustainable
In addition, Thailand central bank has increased its I/R, resulting in increased difficulties to repay the debt. This is likely to reduce C resulting in an economic slowdown especially since C plays a crucial role in driving Thailand’s economy, accounting for half of its GDP. In turn, rising bad debts will also lower investor confidence, leading to a fall in I and further reducing EG.
In conclusion, although debt-fueled consumer spending is typically associated with higher economic growth and lower unemployment in the short term, it is unsustainable in the long run.
Reversal of K Flows & what Central Bank can do
Indonesia central bank has raised its interest four times and engaged in direct market intervention this year. However, these measures have failed and thus the central bank was forced to come up with more innovative measures to increase the value of their currency.
Agriculture Price Support
However, there are implementation difficulties such as coordinated efforts and cost-sharing required between the states and central government. Currently, only about 2-3 of the 23 crops listed for MSP are implemented.
Additionally, given the low scale of production, the margin over cost in the prevailing system of MSP does not generate reasonable income for the farmers. In addition, the breakdown of the cost in agriculture is complex. The imputed cost of farmers’ own family labour, interest on fixed capital and rental value of own rent are difficult to account for when introducing MSP.
Product Differentiation by Shopping Malls
One of the non-price methods is to create a theme for the mall that the shops can revolve around. Katong Point is one example. Rows of old-school mom-and-pop shops selling textiles, shoes, clothes and provisions, art galleries, bustling co-working spaces and boutique cinemas allow customers to also engage in hands-on activities through workshops.
Factors Regulators Consider on Whether to Approve a Merger
Firstly, the acquisition would not result in a substantial reduction of competition since there will still be at least 5 strong rival operators such as Koufu. The combined market shares of Kopitiam and NTUC Foodfare in most areas range between 30-40%.
Secondly, it was assessed that barriers to entry for the food centre operator industry should remain low and collusions are unlikely to happen. In addition, it was also assessed that food vendors would still have bargaining power.
Lastly, the proposed acquisition would allow NTUC Enterprise to create a more efficient business through reaping more economies of scale. Cost savings could then be passed on to consumers to ensure that food remains affordable, consistent with their mission.
Dd & SS Effects on Price
Coupled with an increase in Demand during the festive CNY season, this has resulted in a severe shortage, leading to a spike in fish prices.
For example, the price of a pomfret has risen 67% from $30 to $5o per kg.
Effects of Pop Growth on SOL
The increase in traffic congestion, longer traveling time and more pollution in turn resulted in a fall in non-material SOL.
Effects of Min Wage in Germany
Incomes of low-wage workers did not seem to increase as many seemed to have worked fewer hours. It is not clear if this is due to choice or firms cutting down their hours. There was no significant change in employment but perhaps the fewer hours worked suggest under-employment may have occurred.
There was also no significant change in productivity and no significant effect on inflation. However, there was Significant "black market" as there appeared to be millions of workers still earning below the Min wage. Longer term effects of how firms may switch to automation leading to displacement of workers cannot yet be assessed.
On the whole, it does not seem helpful though outcomes have not been that detrimental either.
Good Deflation in Switzerland
This is possibly a case of a good deflation where aggregate supply increased (due to advancement in tech, increased productivity).
Structural Unemployment in Germany
Stagflation in Argentina
All these were caused by mismanagement of macroeconomic policies (such as the increase in money SS to finance fiscal deficit which has worsened inflation) and serious accusations of corruptions (which led to fall in consumers' confidence).
FTAs help attract FDI
Firms, such as UK's Dyson and Japan’s big shipping lines are relocating their head offices here in Singapore.
The FTA opens up new market opportunities for these firms, and in turn these FDIs will benefit the Singapore economy.
Carbon Price Incentivising Sustainable Production
This shows how policies that create a carbon price can incentivise sustainable production and reduce the Marginal External Costs (MEC) generated.