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Real-World Examples

Real-World Examples are extremely important for Part B of the Paper 1 question. To paraphrase the IB Economics guide, omitting a relevant real-world example guarantees that the student cannot score higher than the 1-3 mark band out of 15.

Below is a list of real-world examples pertaining to microeconomic topics that are frequently tested. This is not a comprehensive list and if you feel that we have left out any important Real-World Examples please do not hesitate to suggest it using the "Contact Us" form. It is also important to note that the points presented under the subsection "Points of Discussion" is not an exhaustive list of evaluation points and should rather be used as guiding points. 

HL and SL 

Negative Externality of Production

Carbon Tax

Overview

Canada has implemented a tax of $50 per ton of carbon dioxide emitted by facilities that emit more than 50,000 ton's of carbon.

Links

Points of Discussion

  • The tax is estimated to reduce greenhouse gas emissions by 80 to 90 million tons

  • The tax has faced backlash from the governments of Ontario, Alberta and Saskatchewan suggesting it may have been politically motivated.

  • As a carbon tax is an indirect tax it is regressive. However, their is a tax rebate (subsidy) for lower income individuals

Tradeable Permits

Overview

Canada has implemented a tax of $50 per ton of carbon dioxide emitted by facilities that emit more than 50,000 ton's of carbon.

Links

Points of Discussion

  • The tax is estimated to reduce greenhouse gas emissions by 80 to 90 million tons

  • The tax has faced backlash from the governments of Ontario, Alberta and Saskatchewan suggesting it may have been politically motivated.

  • As a carbon tax is an indirect tax it is regressive. However, their is a tax rebate (subsidy) for lower income individuals

Negative Externality of Consumption

Indirect Tax

Overview

Qatar implements a 100% tax on alcohol essentially doubling the price of alcohol

Links

Points of Discussion

  • Could be religiously motivated as Qatar is a largely Muslim state and alcohol is prohibited under Islamic law

  • Will be extremely effective as 88% of Qatar’s population is foreign

  • Revenue is likely to be reinvested into education and healthcare

Government Legislation and Regulation

Overview

Hawaii raises the minimum smoking age from 18 to 21

Links

Points of Discussion

  • Nationally 95% of adults who smoke began before the age of 21

  • In Hawaii 86% of adults start smoking before 21

  • According to the IOM the increase in minimum age for tobacco consumption would be successful rebate (subsidy) for lower income individuals

  • Reports indicate that the tobacco kills roughly 1,400 people and costs $526 million annually

Positive Externality of Production

Direct Government Provision

Overview

Karnataka state government expanded and modernized the Bangalore airport at a cost of 1,500 crore rupees. 

Links

Points of Discussion

  • Accessibility in the city has greatly increased promoting local businesses 

  • The rapid growth has led to Bangalore being deemed the silicon valley of India

  • Revenue generated will be reinvested into the public sector 

Subsidy

Overview

Spain has subsidized clean energy and will provide 101 million euros toward renewable electricity production

Links

Points of Discussion

  • The subsidy is estimated to reduce carbon emissions by 700,000 tons every year

  • The method of clean energy production for which the subsidy is being provided ranges from biomass to photovoltaic providing greater probability of success

Positive Externality of Consumption

Direct Government Provision

Overview

Karnataka state government expanded and modernized the Bangalore airport at a cost of 1,500 crore rupees. 

Links

Points of Discussion

  • Accessibility in the city has greatly increased promoting local businesses 

  • The rapid growth has led to Bangalore being deemed the silicon valley of India

  • Revenue generated will be reinvested into the public sector 

Subsidy

Overview

Spain has subsidized clean energy and will provide 101 million euros toward renewable electricity production

Links

Points of Discussion

  • The subsidy is estimated to reduce carbon emissions by 700,000 tons every year

  • The method of clean energy production for which the subsidy is being provided ranges from biomass to photovoltaic providing greater probability of success

Price Floor

Overview

Kerala has set a price floor on vegetables at 20% greater than their production cost

Links

Points of Discussion

  • 16 variants of vegetables are being covered

  • Registration can be done on an online portal but may seem to be a problem as farmers aren't as tech savvy

Price Ceiling

Overview

Government of Indonesia implemented a price ceiling on individually requested swab tests at Rp 900,000

Links

Points of Discussion

  • The price ceiling is only for state owned laboratories

  • Initial shortages are expected however the supply chain is expected to return to normal in long run

  • The price ceiling comes in light of severe public backlash

HL Only

Government Intervention in response to abuse of market power

Legislation and Regulation

Overview

In 2019 Britain’s competition and markets authority blocked a merger between the second and third largest supermarket firms Asda and Sainsbury respectively.

Links

Points of Discussion

  • If the merger was allowed the market share of the two firms would be 30.7% and they would be the largest supermarket firm in the country

  • The two firms claimed that costs would fall by 10%, however the opposing authority argued that their investigation suggested that the merger would lead to increased prices, reduced quality and choice of products.

  • The merger may have also been declined in light of an increasing concentration of firms in the domestic economy with $2 trillion worth of mergers and acquisitions have occured in the past decade.

Fines

Overview

In 2018 the European commission imposed a $5 Billion fine on Google for violating the EU’s competition rules by requiring phone manufacturers to preinstall the google browsing app to access the google play store

Points of Discussion

  • President Trump and Former President Obama argued that the fine towards American companies was unfair

  • Google has shares of more than 90% in most European economic area’s

Links

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