ECONOMICS-REAL LIFE EXAMPLES

CHAPTER 1

1. 2007 US crisis = subprime mortgage crisis (rise in defaults→more houses available

on the market→house prices boom fell→mortgage value fell→banks made
losses→credit crunch)
2. 1929 great depression
3. 1973 OPEC (organization for petroleum exporting countries) = limit the oil
supply→oil become scarce→price tripled
4. 2012 France income tax = 75% income tax on rich

CHAPTER 2

5. 2008 Zimbabwe hyperinflation = 231 million % inflation rates (US $ become the
currency in 2009

CHAPTER 4

6. Fallacy of composition=what is true for one doesn’t mean true for everyone

CHAPTER 5

7. Research in France with 120 people = to check revealed preference, with

experiment→71% were utility maximisers
8. Research for consumers in California when petrol prices rise = dining in
restaurants fall by 56%, grocery expenditure rise by 19%. Also, they substitute full
price with special offers(discounts)

CHAPTER 6

9. Northern Rock Bank 2008 = after crisis, unable to obtain loan from Central Bank,
customers queue outside branches to close their accounts.
10. Microsoft in 2008 = unsuccessful takeover of Yahoo!

CHAPTER 7

11. UK productivity puzzle 2012 = GDP rise by 1.3% and labor hrs. worked rise by
2.3% (workers are working more but productivity falling) Because the intangible
investment(R&D) are ignored.

CHAPTER 8

12. Perfect competition market approximations

a) agriculture market(cocoa)
 b) forex market
13. Monopoly = Royal mail (sole supplier of UK stamps)
14. Competition policy divided into policies to
a) Deal with monopoly power that already exists
b) Deal with mergers that may increase monopoly power
15. For European Union, EU competition law
16. 2 key institutions addressing UK competition policy
a) Office of Fair Trading (OFT)
b) Competition Commission
17. 3rd degree price discrimination
a) Consider an airline monopolizing flights between London and Rome. It has
business customers whose demand curve is not very elastic. They have to fly. Their
demand and marginal revenue curves are very steep. The airline also carries
tourists whose demand curve is much more elastic. If flights to Rome get too
expensive, tourists may visit Athens instead. Tourists have much flatter demand and
marginal revenue curves. Since tourist demand is elastic, the airline charges tourists
a low fare to raise tourist revenue. Since business demand is less elastic than tourist
demand, the airline charges business travelers a high fare to increase business
revenue.
b) Rail companies charge rush-hour commuters a higher fare than midday
shoppers whose demand for trips to the city is much more elastic.
c) Night clubs may charge different entry fees to men and women.
d) Ticket prices for cinemas and public transport are normally different for
adults and children.
18. economist and social scientist, Joseph Schumpeter = we are ignoring that
monopoly can fund R&D then can make cost cutting ways
19. modern economies have patent systems, for a period of time firm can get huge
profits from the patent (pharmaceutical drug)
20. Ofgem is the regulatory body for the gas and electricity markets
21. Two part tariff = landline telephone a customer will be charged a fixed monthly
connection fee plus a price per minute of use
22. Industries like electricity, gas, water, telecommunications and the railways are all
examples of natural monopolies that were nationalized

CHAPTER 9

1. Oligopoly = car market (price of Toyota doesn’t always depend on their

output also of other like Suzuki,Ford)
2. Monopolistic = corner’s shop (personal service and convenience, can charge a
little high price than out of town supermarket)
Corner shop by location and Hairdresser by customer loyalty
3. UK there are many grocery shops; however, four large supermarkets, namely
Tesco, Sainsbury’s, Morrison and Asda, jointly represent 70 per cent of total
grocery retail sales
4. Monopolistic = restaurant industry (McDonald’s vs Michelin star food) =
imperfect substitutes and can charge high price and still retain customers
 5. Cartel = OPEC (reason for succession for period of time=willingness of Saudi
Arabia to restrict its output even when smaller members want to expand)
(failed because Saudi Arabia increased the output as punishment strategy)
6. John Nash = invented application to game theory
7. Coke and Pepsi are fight for global dominance
8. Examples of oligopolies in the UK include the supermarket
industry (dominated by Tesco, Sainsbury, Morrison and ASDA) and retail
banking (dominated by Barclays, Lloyds, the Royal Bank of Scotland
and HSBC).

CHAPTER 10

1. cross-country differences in capital–labour ratios in the same industry.

European farmers face high wages relative to the rental of a
combine harvester. Mechanized farming economizes on expensive workers.
Indian farmers, facing cheap and abundant labour but scarce and expensive
capital, use labor-intensive techniques. Workers with scythes and shovels do
the jobs done by combine harvesters and bulldozers in the UK
2. empirical evidence for the UK, the US and most other Western economies is
as follows. For adult men, the substitution effect and the income effect
almost exactly cancel out. A change in the real wage has almost no effect on
the quantity of hours supplied. The supply curve of hours worked is almost
vertical.For women, the substitution effect just about dominates the income
effect. Their supply curve for hours worked slopes upward. Higher real wages
make women work longer hours.
3. Labor Force Participation Rate in European Union averaged 71.18 percent from
2003 until 2021
4. Unemployment benefit from the government may be lost immediately, the
right clothes or uniform must be purchased, travel expenses must be
incurred to get to the place of work and childcare must be found for the
children
5. Turkey experienced structural changes that should
have facilitated the entry of women in the labour market. Women are
becoming
better educated and are getting married at a later age. The fertility rate (that
is,
the average number of children per woman) has declined and the social
attitude towards working women has changed in comparison to the past
urbanization and the decline in agricultural
employment are the main factors explaining the decline in female
participation
in the labour market in Turkey Young men are becoming
more educated and thus move away from agricultural employment to better
paid jobs. Shifting family activity away from agricultural employment causes
a withdrawal of wives from the labour force
6. big factory located close to a small town. It is likely that most of the
workers of the small town will work for that big factory. The big factory has
 monopsony power in the local labour market
7. UK football industry and the US baseball industry, it is often said that high
player salaries are bankrupting the industry. But wages are high because the
derived demand is high – crowds at the ground and television rights make it
profitable to supply this output – and because the supply of talented players
is
scarce. The supply curve of good players is inelastic: even very high wages
cannot
increase the number of good players by much. A large proportion of the
wages
received by professional footballers is economic rent
8. US minimum wage per hour = $7.25
9. paternity leave for fathers, the provision of day cares for working parents or a
greater acceptance of part-time working by both sexes would increase the
incentive for firms to decide to favour the training of women.
10. According to Bureau of Labor Statistics data, in 2020, women's annual earnings were
82.3% of men's, and the gap is even wider for many women of color.

CHAPTER 13

1. Heckman et al. (1998) studied the partial and general equilibrium effects of a
particular school policy: a $500 tuition subsidy to college students.
partial equilibrium effect will focus on the effect that such a policy has on the
college students, everything else constant.
They found that a $500 tuition subsidy leads to an increase of 5.3 per cent in
college attendance.
general equilibrium
In particular, Heckman et al. focused on the labour market for college
graduates. Now there are two markets linked together: the market for
colleges and the labour market for college graduates.
They found that, once we take into account the link between the two
markets, the result of the policy is an increase in college students of only 0.49
per cent.
2. Brazil, with a very unequal distribution of income and wealth, has a high
demand for luxuries such as servants. In Denmark (egalitarian=equal rights),
nobody can afford servants.
3. Under the Clean Air Act (CAA), EPA (environmental protection agency US)
sets limits on certain air pollutants, including setting limits on how much can
be in the air anywhere in the United States. The Clean Air Act also gives EPA
the authority to limit emissions of air pollutants coming from sources like
chemical plants, utilities, and steel mills.
4. UK examples include the Health and Safety at Work Acts, legislation to
control food and drugs production, the Fair Trading Act governing consumer
protection, and various traffic and motoring regulations. Such legislation aims
to encourage the provision of information that lets individuals more
accurately judge costs and benefits, and aims to set and enforce standards
designed to reduce the risk of injury or death.
CHAPTER 14
1. Gini coefficient=income inequality
Highest = Africa,Zambia,Comlombia
Lowest = Slovania,Ukrain,UAE
2. Highest government budget deficit = USA,Japan,China
3. Transfer payments = social protection of pensions, jobseeker’s allowance
(formerly unemployment benefit) and debt interest.
4. direct taxes are income tax, and corporation tax on company profits
5. indirect taxes are value added tax (VAT) and customs duties.
6. 2007 smoking ban =  illegal to smoke in any pub, restaurant, nightclub, and most
workplaces and work vehicles, anywhere in the UK

CHAPTER 15

1. Japan is the top country by general government net debt (% of GDP) in the

world. As of 2020, general government net debt (% of GDP) in Japan was 169.2
%
2. Emerging countries(BRIC) = Brazil,Russia,India,China
3. Satisfaction with Life index - Denmark, Switzerland and Austria topped the
ranking, whereas Burundi, Zimbabwe and the Democratic Republic of the Congo
came bottom
1. 1926 general strike UK = mine workers(unions) protest against mine owners
deciding to give low wages and long hours.

CHAPTER 16

2. 1929 wall street crash USA = stock exchange crash; investors sold 16million
shares due to speculation.
3. 1990 UK pegged its exchange rate and interest rate to European countries
and at that time Germany unification. German interest rates were sky high to
prevent inflation exploding in Germany, and the UK could not live with these
high interest rates. On Black Wednesday in September 1992, the UK
abandoned the experiment,allowed its exchange rate to fall and slashed
interest rates – economic recovery soon followed

CHAPTER 17

1. In most European countries, the government directly buys about a fifth of

national output and spends about the same again on transfer payments
2. During 2009 governments around the world had huge budget deficits as
they bailed out their banking systems and spent money on car scrappage
schemes to try to prevent the car industries imploding
3. Exports X and imports Z are each about 15 per cent of GDP in a large country
such as the United States (which mainly trades with itself), but can reach up
to 75 per cent of GDP in a small open economy such as Belgium or the
 Netherlands. In middle-sized countries such as the UK, France and Germany,
exports and imports are around 30 per cent of GDP
4. Crash 2009, Japan had big fiscal expansion to restore confidence. C & I fell to
offset expansionary fiscal injection. 2010 only returned to growth. 2013 Japan
net dept is 140% of GDP. Cutting interest rates to 0 saved from worse
5. US has a surprisingly ‘progressive’ tax structure that relies heavily on taxing
the rich. Germany and most European countries raise most of their revenues
through ‘regressive’ consumption and energy taxes – petrol, alcohol,
cigarettes, VAT – bearing mainly on the poor and the middle class. Hence, US
tax revenue suffers much more in severe recessions, especially if these hit
wealthy citizens, such as bankers and stock market investors
6. Maastricht Treaty set a ceiling of 60 per cent for the debt/GDP ratio of each
member state in the Eurozone
7.  "Golden Rule" of government spending is a fiscal policy stating that a government
should only increase borrowing in order to invest in projects that will pay off in
the future.

CHAPTER 18 + 19

1. Dogs’ teeth in the Admiralty Islands, sea shells in parts of Africa, gold in the
nineteenth century: all are examples of money.
2. German hyperinflation of 1922-23(government kept printing money to pay
for striking workers) , when prices in Papier marks changed very quickly,
German shopkeepers found it more convenient to use dollars as the unit of
account.
3. 2009 Zimbabwe had to legalize the use of dollars as money because its
domestic currency was almost worthless after years of hyperinflation.
Zimbabwe’s central bank introduces gold coins($1800 each) in hopes to ease
citizens demand for foreign currency.
4. Mademoiselle Zelie, a singer, gave a concert in the Society Islands. her share
was found to consist of 3 pigs, 23 turkeys, 44 chickens, 5000 cocoa nuts,
besides considerable quantities of bananas, lemons and oranges
5. Financial institutions = banks , insurance companies, pension funds
6. All banks in the United Kingdom have agreed to maintain minimum reserve ratios
of 12%
7. securitization of US sub-prime mortgages – dubious loans to poor people who
were often duped into taking out mortgages whose repayments they would
later be unable to afford. Suddenly, many institutions around the world
found themselves holding ‘assets’ that were revealed to be worth almost
nothing, setting up a tsunami of insolvency
8. central bank – the Bank of England in the UK, the ECB in the Eurozone, the
Federal Reserve in the US
9. US house prices peaked in 2006. As they then fell, lenders got scared and
began to raise mortgage interest rates, driving many of the poor to default.
Suddenly, these sub-prime mortgages were worth a lot less than had been
thought. And the crisis fed upon itself. The more scared people became, the
more asset prices fell, validating the initial fears.
 10. Financial Services Authority (the UK body charged with supervising financial
institutions)

CHAPTER 20

1. Portugal, Italy, Greece and Spain

four characteristics: high government debt, high budget deficits, lack of international
competitiveness and membership of the Eurozone.
2. Problem for Eurozone countries such as Greece was
that, as members of the Eurozone, they had surrendered the ability to use an
independent monetary policy to target their needs alone

CHAPTER 21

1. Negative interest rate countries

Switzerland, Japan, Denmark, Sweden

CHAPTER 22

1. 2022 September Switzerland increased interest rate to tackle inflation

End of era of negative rates in Europe
2. Zimbabwe hyperinflation 2016
Money printing and deficit spending
3. German hyperinflation 1921
Printing banknotes to pay workers which were not backed by gold
4. UK interest rates set by BOE’s monetary policy committee

CHAPTER 23
1. Effectiveness of tax cuts by Margaret Thatcher 1980s
She reduced income tax for high income earners = fell by 40% for low income earners = fell
by 25%
She enforced tight monetary policy & curb money supply & reduced public spending = to
control 25% inflation
2. High market flexibility
Denmark, Switzerland, US, Finland
3. Low market flexibility
Greece, Italy, Austria
4. Generous unemployment benefits after no. of yrs’
Norway, Belgium
5. Worthless benefit after 1st yr
Japan, Greece, US

CHAPTER 24

1. Eurozone is a monetary union whose members have permanently fixed

exchange rates against one another but a floating exchange rate in
relation to the rest of the world.
 2. Fixed peg = china, Pakistan
3. Free float = UK, US, Sweden

CHAPTER 25

1. Capital control in Greece 2015-2019

during a standoff between international bailout lenders and the previous Greek
government that triggered a three-week closure of Greek banks and severe limits placed
on cash withdrawals.

CHAPTER 26

1. Africa in Malthusian Trap 2016

Technological advances are resulting in increased population growth (due, for example,
to medicines and the expansion of the healthcare system), but the standard of living
remains
2. England first country to attain sustained growth
3.  global population has grown from 1 billion in 1800 to 7.9 billion in 2020. The UN
projected population to keep growing, and estimates have put the total population at
8.6 billion by mid-2030, 9.8 billion by mid-2050 and 11.2 billion by 2100.