1.

Micro-economics SL

1. PED and

a. Firms

i. Elastic demand use price competition e.g. McDonalds €1 cheeseburger

and budget airline flights

ii. Inelastic demand increase prices for profit e.g. Shell and Neste for
petrol

b. Government decision making

i. Taxation of inelastic goods to gain revenue e.g. alcohol, petrol and

tobacco. N.B. tax on petrol is to pay for road maintenance NOT for
negative externalities.

ii. Subsidy of elastic goods to encourage consumption e.g. solar panels

and electric cars €5000/car in Finland

2. Government intervention ito markets: consequences for markets and stakeholders

a. Maximum prices

i. Covid test e.g. Spain January 2022

Has a maximum price of 2.94euro compared to the 5 to 8 euro market

price.

ii. Rent controls in Berlin, January 2020

b. Minimum prices

i. Scotland (2021) and Ireland (january 2022) e.g. wine minimum

€7/bottle

ii. CAP agricultural policy e.g. €110 per tonne for wheat

c. Taxation

i. Petrol tax is 78% of price in Finland

ii. Tax on cigarettes over 80% of the price in Finland

d. Subsidies

i. €5000 subsidy on electric car in Finland

ii. €123/hectare in most of Finland

3. Strengths and limitations of policies to control externalities/common pool resources

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 3. Strengths and limitations of policies to control externalities/common pool resources

a. Positive production externalities

i. Beautiful old buildings e.g. Senate Square in Helsinki

ii. beekeepers

1. Subsidy to

2. Government provision

b. Positive consumption externalities

i. Vaccine against Covid 19

1. Education awareness e.g. Lyme disease vaccine (punkkibussi)

2. Subsidy of vaccines e.g. flu vaccines in Finland

3. Government provision of vaccine e.g. Covid vaccine in Finland

c. Negative production externalities

i. Air travel electricity production or commercial transport

1. Pigouvian tax on air travel (EU tax) €10/GJ (gallon jet fuel)

2. Carbon tax on emissions for sectors in EU that are not covered

by ETS

3. Legislation and Regulation

a. Banning coal power stations: Finland aims at closing

the last one by 2029; Austria, Belgium and Sweden have
no coal power left.

b. Regulating emissions of public transport

4. Tradable permits for carbon emissions used in EU e.g. ETS -

European trading system: as of 2021 aims to reduce emissions
by 55% by 2030 and carbon neutral by 2050.

5. International Agreements e.g. Paris Agreement and Kyoto

Agreement

d. Negative consumption externalities

i. Driving private car or consuming alcohol or tobacco

1. Pigouvian tax - on car emissions, alcohol content or tobacco

(see above)

2. Carbon tax - on emissions: Finland progressive 0-650€

depending on CO2 emissions, €0 for electric cars and €650 for
over 400g/km (e.g. old Range Rover).

3. Legislation and regulation;

a. banning tobacco (New Zealand) or sale of petrol cars

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 a. banning tobacco (New Zealand) or sale of petrol cars
(Germany after 2030)

i. The NZ government originally had a high tax on

tobacco, but this didn’t work because tobacco is
very addictive and has few substitutes (inelastic
demand). Their solution was to ban tobacco for
those born after 2008 (affecting demand instead of
supply), meaning the externality will solve itself with
time. Parallel markets cannot form because of New
Zealand’s geographical isolation.

ii. All federal states in Germany have come to an

agreement to ban all petrol vehicles by the
beginning of 2030. However, this agreement did
not specify whether this ban would remove all
petrol cars off the road or just halt their sales.
Taking petrol cars off the road would immediately
remove the negative externality of consumption
whereas halting their sales would prevent an
increase in the negative externality of consumption.

b. Restriction of sales by age (cigarettes and alcohol) or

times (alcohol in Finland)

4. Education programmes about harm of alcohol and tobacco e.g,

warning labels on packaging

e. Common pool resources

i. Fish or Forests

1. Legislation and Regulation

a. Quota system to restrict production

i. Baltic Sea fishing: maximum allowed catches for

e.g. western Cod=4 000 tonnes per year (2022).
Every year the countries surrounding the baltic Sea
set a quota on how much fish is allowed to catch
annually, to help maintain biodiversity.

ii. Finnish forest harvesting: 20.3 million hectares

available for deforestation (wood production), to
restrict from over harvesting potentially leading to a
loss of biodiversity.

iii. Forestry is prohibited in national parks in Finland

except for keeping the park usable for visitors or for
forest wellbeing in some cases. Fishing permitted
with a licence in state-owned waters, both lakes
and the ocean, with certain limitations on areas and
times to protect fish stocks.

4. Importance of international co-operation

a. Paris Climate Agreement

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 a. Paris Climate Agreement

- Paris Climate Accords (effective from 2016 forward)

- Legal binding international treaty on climate change

- 196 parties agreed to limit global warming well below 2, preferably

1.5*C

- Trying to achieve a climate neutral world before 2050

- Encourages international cooperation

a. Baltic and Mediterranean Fishing Agreement

- AGRIFISH Council (2021) had a meeting about the fishing rights in

Baltic Sea and agreed on different quotas including 88% cuts in the cod
catch to combat unsustainable overfishing and possible extinction of
fishes.

- The European Commission for the Environment, Oceans and Fisheries

has agreed on only commercial fishing opportunities on the
Mediterranean Sea from 2022 onwards to combat the declining stocks.

- Both multinational agreements to combat problems such as the

loss of biodiversity and climate change, as these problems cannot
be solved by one country alone

5. Government intervention and Public Goods

a. Direct provision e.g. roads in Finland

i. Metro de Santiago: the metro system in the metropolitan area of Chile’s

capital (Santiago) is operated by a publicly owned company.

b. Contracting out

i. Transantiago: Public transportation, as opposed to the metro in

santiago, was contracted out to seven different companies (Metbus,
Vule, Subus, etc..).
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