IB Economics HL – Real-world examples for P1
Chapter 1 – The foundation of economics
Inward shift of the PPC Famine in Ireland 1845-1852 due to the potato shortage,
population fell by 20-25 %, GDP growth plummeted
Chapter 2 – Competitive markets: Demand and supply
Increase in demand / Online-streaming services replacing CDs – the US experienced an
Decrease in supply 80% fall in the demand for CDs in the last decade, while Spotify’s
revenue was around €13.25 billion in 2023
Increase in supply / Technology developer better solar panels – increased supply of
Decrease in demand renewable energy, decreased demand for thermal energy, in 1990
renewables accounted for 5% of the US energy consumption, but
in 2023 this figure was 13%
Shortage / Surplus During winter season there is a shortage of fresh produce like
fruits and vegetables, while during harvest season there is a
significant surplus – while customers always want the produce,
producers are only able to provide it at certain times of the year
Chapter 3 – Elasticities
High PED (elastic) goods Gucci clothing is not a necessity for most people to have, however
when it comes at a decreased price, it might be worth it to some
individuals
Low PED (inelastic) goods The price of Daraprim (cancer drug) was increased by more than
50 times but demand barely changed, because it was a necessity
Negative YED Margarine is inferior to other alternatives (e.g. butter) – while
(inferior goods) surveys show that user prefer butter due to taste and health
preferences, margarine is still widely consumed due to it being
cheaper and eaten by people with lower incomes
Low positive YED Most foods consumed at home have a low YED – about 0.2, due to
(income inelastic) food being a necessity for people survive and a necessary
(normal good) spending item for everyone, regardless of price
High positive YED Premium cars – the price is so much higher than the price of other
(income elastic) alternatives that only those with incredibly high income can make
(luxury good) the choice to drive luxury cars
High PES (elastic) Taxi services – these can be produced instantly and a high supply
of them can be provided regardless of price
Low PES (inelastic) Nuclear reactors – the additional two reactors of Temelín are a
very high budget project, yet they still take years of planning and
construction, therefore only a small supply of them exists even at
high prices
Chapter 4 – Government intervention in microeconomics
Indirect tax Czechia uses three tiers of the Value Added Tax – 21% as the
normal one, 12% as the reduced one for necessities and merit
goods like food or tickets to cultural events and 0% as the null tax
for books
Subsidy The US puts out agricultural subsidies at around $20 billion per
year to ensure a steady domestic food supply, provide economic
stability to farmers and increase international competitiveness
Price ceiling India put a price ceiling on bare metal stents in Feb 2017 to enable
its citizens to build more housing - prior to cap, bare metal stents
were selling for 650 USD, now capped at 100 USD
Price floor In 2022, the G7 nations, the EU and Australia imposed a $60 per
barrel of Russian oil price floor to discourage consumption and
reduce Russia’s ability to fund the war on Ukraine
+ minimum wage is also a type of a price floor (UK is 8 pounds an
hour)
Chapter 5 – Common pool resources and negative externalities
Common pool resource Most natural resources like forests of fishing grounds are often
exploited CPRs since anyone can access them for no cost
Negative consumption Smoking cigarettes has negative effects on the health of
externality individuals surrounding the consumer, e.g. lung cancer or cardiac
damage
Negative production Producing thermal energy from coal accelerates global warming by
externality producing greenhouse gases and perpetuates breathing problems
for people in areas near coal power-plants
Tradable permits The EU employs the EU ETS since 2005, where one permit allows
the holder to reals one tonne of carbon dioxide, these permits
have been implements on various energy intensive industries and
have successfully decreased the EU carbon dioxide production,
additionally ETS2 has been implemented in 2023 for additional
sectors based on the success of the ETS
Taxes 4% Municipal Accommodation Tax in London to combat the
negative externalities of tourism and offering accommodation
Carbon tax Canada has a carbon tax of $20 per tonne of carbon emissions
Government regulation Putting images of destroyed lungs on cigarettes and banning them
and education from restaurants to prevent the negative effects that they have on
the people surrounding smokers in Czechia
Collective self- The 4ocean movement that gathers people to clean up plastics in
governance oceans
Chapter 6 – Positive externalities, public goods, asymmetric information
Positive production When airlines employ flight attendants, they provide them with
externality rigorous first aid training that can help them save lives even in
situations outside their employment
Positive consumption When children undergo education, not only do they benefit
externality themselves later in life, but they become a more effective part of
the workforce, making them benefit the whole society
Direct government The Czech Repulic mandates that all its citizens undergo 9 years of
provision / legislation basic education, and the government provides this education at no
cost
Awareness creation Germany took part in the 5-a-day program, incentivizing citizens to
eat at least 5 portions of fruits or vegetables each day
Merit goods Vaccines – using a vaccine means that people around the
vaccinated person also don’t get sick
Public goods The Czech military provides protection and help to all citizens at no
added cost
Adverse selection Seller knows more – the Czech Association of Car Resellers banned
several of its members due to them rewinding tachometers that
indicate how much the car has been used
Buyer knows more – when a buyer knows that there is an issue
with their car, but disguises that issue from the provider of
insurance
Regulation The Czech Supreme Court ruled that rewinding a tachometer is a
criminal offence
Provision of information Regulating and requiring extensive information to be included on
medication booklets
Licensing Lawyers and doctors as profession able to engage easily in adverse
selection transactions are required to have a license attesting their
sufficient credibility
Screening By customers – several comparisons sites review car resellers and
check if they are trustworthy
By companies – insurance companies often have a thorough
process of reviewing claims
Signalling Car resellers using large advertisement billboards that show the
most positive feature of their products
Government provision To take away risks from providers of insurance, the UK operates a
National Health Service under the government
Moral hazard When a buyer intends to start driving their car a lot more
recklessly after obtaining insurance, while having a good previous
driving record
Chapter 7 – Market power
Economies of scale Thanks to being such a large company, Boeing was able to close an
exclusive distribution deal with aerospace company Ontic for
some of their products on Boeing planes, leading to greater
product differentiation – a smaller start-up doesn’t have the
power to close such beneficial deals
Diseconomies of scale If Tesla were to increase their production more, they would
massively drive up the demand for lithium, a finite resource, which
would also increase its price more due to its scarcity – it is thus
beneficial for Tesla to produce less cars
Monopoly (natural) Railways in India – the industry requires nation-wide resources
and only Indian Railways are able to attain them
Oligopoly Mobile network operators – in Czechia only four (T-Mobile, O2,
Vodafone and Nordic Telekom)
Monopolistic competion The fast-food industry has many different companies operating on
it from chains like McDonalds to burger stands in NYC
Perfect competition While nothing is absolute perfect competition, the street markets
in SE Asia come very close
Cartel The Swiss Cheese Union functioned from 1914 up until 1999 when
it was disbanded due to corruption accusations and subsequently
prices of Swiss cheese plummeted
Non-price competition Apple and Microsoft use advertising and product differentiation to
compete with their MacOS and Windows products
Anti-monopoly In 2018, the European Commission imposed a $5 billion fine n
regulations Google for requiring phone manufactures to preinstall Google’s
apps, which would lead to Google increasing its market power
In 2019, Britain’s Competition and Markets Authority blocked a
merger between supermarket chains Asda and Sainsbury’s
Chapter 8 – The level of overall economic activity
GDP vs GNP stats Developing countries have lower GNP than GDP, as much of their
GDP is contributed by multinational corporations
Bangladesh GDP 2017: 250 billion USD
Bangladesh GNP 2017: 120 billion USD
Half of Bangladesh’s GDP is from foreign firms owing productive
capacity in Bangladesh - this income is likely not spent in the
country, so does not affect economic growth
Total GDP/GNI vs India GDP: 2.6 trillion USD
GDP/GNI per capita France GDP: 2.6 trillion USD
India GDP per capita: 2,000 USD
France GDP per capita: 38,000 USD
OECD Better life index Czechia OECD BLI: 6.48
Israel OECD BLI: 6.28
Czechia GDP per capita: $30,556
Israel GDP per capita: $54,337
Chapter 10 – Unemployment and inflation
High and low Spain: 14% unemployment (high job protection)
unemployment Singapore: 2% unemployment (no minimum wage)
Frictional unemployment Spain has a youth unemployment rate of around 30%, which
stems from young graduates being unable to make the transition
from education to employment.
Structural Singapore is conducting economic restructuring shifting to a more
unemployment digital based economy, killing many jobs and creating other which
makes jobs and skills mismatches a challenge in finding jobs
Seasonal unemployment In less economically developed countries like Liberia, agriculture
employs 70% of the population, which cannot be employed
outside growing and harvesting season
Cyclical unemployment In the US, before the financial crisis in Dec 2007, unemployment
was 5%. At the end of the financial crisis in 2009, unemployment
was 9.5%.
Cost-push inflation In the 1970s, due to geopolitical conflict in the Middle East, OPEC
imposed a ban on exports to many countries, causing oil prices in
the US to quadruple from $3 to $12 per barrel
Demand-pull inflation Post-COVID, many consumers returned to the markets sparking a
rise in demand, 2022 saw inflation approach 20% in Czechia
Hyperinflation The inflation rate in Venezuela in 2018 was an estimate 80 000%
Stagflation Zimbabwe in 2018-19 printed significant amounts of money and
destroyed the economy (inflation grew by almost 250%,
unemployment almost doubled)
Deflation Prices dropped an average of nearly 7% every year between the
years of 1930 and 1933 in the US during the Great Depression
Recession The Great Recession: December 2007–June 2009 saw a GDP
decline of 4.3% and had a peak unemployment rate of 9.5%
Chapter 11 – Economic growth and debt
High GDP growth Guyana 63.4% (2022)
Low GDP growth Sudan -1.0% (2022)
Debt-to-GDP High debt-to-GDP ratio in 2018: Japan (234.2%)
Low debt-to-GDP ratio in 2018: Bulgaria (22.8%)
Chapter 12 – Inequality and poverty
Equal distribution of Norway Gini Coefficient: 0.23 due to free public education,
income progressive taxes and long-term unemployment benefits
Unequal distribution of South Africa Gini Coefficient: 0.63 since over half of population in
income poverty, new jobs are high-skill jobs, not accessible to those in
poverty, apartheid also left many in a poverty trap, with low
education and skills
Investment in human SkillsFuture is Singaporean a government program aimed at
capital reskilling the workforce through training to gain skills that are in
demand accessible for free to the citizens
Progressive tax Germany has one of the most progressive tax systems (e.g. 2020 –
0% up to €9,744 and 45% for €274,612 and more)
Indirect tax on luxuries Canada imposed a Luxury Tax in 2021 on vehicles and aircraft
priced over $100,000 at the lesser of the 10% of the total value or
20% of the value over $100,000
Transfer payments The Czech government paid CZK 956 million in humanitarian
benefits to people in need
Universal basic income Canada is considering implementing UBI, which would cost the
government an estimated $88 billion in 2022-23.
Price discrimination Czechia imposing a 50% price cut on rail tickets for children,
students and seniors
Chapter 13 – Policies
Expansionary fiscal policy Barack Obama’s economic stimulus package ended the recession
following the 2008 financial crisis – cut taxes by $290 billion, spent
$220 billion in unemployment benefits, allocated $275 billion to
federal contracts to create jobs
Contractionary fiscal In the 90s, Bill Clinton raised income taxes from 28% to 36% for
policy high income earners and the corporate tax also increased from
34% to 36%, subsequently inflation fell from 6% to 3%
Expansionary monetary The Czech National Bank slashed the repo discount rate from 3.5%
policy in August of 2008 to 1% by the end of 2009
Contractionary monetary In mid-2018, the inflation in India was rising, nearing 5%
policy Contractionary monetary policy was used, increasing interest rates
to 6.25% to curb spending and reduce inflationary pressure.
Investment in Singapore committed to invest 1% of GDP into R&D, Fintech, AI,
technology digital healthcare
Investment in The US Bipartisan Infrastructure Bill puts $1.2 trillion into
infrastructure developing infrastructure
Industrial policies Tax Cuts and Jobs Act, implemented by Trump in Dec 2017
Reduced corporate tax from 35 to 21%, resulted in increased
investment to expand productive capacity
Deregulation Singapore removed regulations on the electricity market, allowing
private firms to sell electricity from Nov 2018, which increases
competition
Privatization India privatized the coal and oil industry, removing the monopoly
power of the state and allowing private firms to join
Trade liberalization The EU
Reducing unemployment US congress decided not to extend federal unemployment
benefits and minimum benefits at the end of 2013, which means unemployment benefits
wage would end for 1.3 million people
Income and business tax Tax Cuts and Jobs Act, implemented by Trump in 2017 reduced
cuts corporate tax from 35 to 21%, resulted in increased investment to
expand productive capacity, and reduced income taxes
Automatic stabilizers In 2008 US spent $220 billion in unemployment benefits to
stabilize the economy during recession