The Role of Government in Microeconomics (DP IB Economics: HL)

Using the information below, calculate the total cost of the subsidy to the U.S. government in 2021

Cotton is a water-intensive crop. According to the WWF it takes more than 20 litres of water to produce just one kilogramme of cotton. The demand for cotton in the fast fashion industry contributes to increased cotton production worldwide and is thus responsible for the negative impact on water resources.

Still, there are countries that heavily subsidise their cotton farmers so that they are able to meet the high global demand. 

The United States has implemented subsidies and support programmes for cotton farmers. Under the Cotton Transition Assistance Programme (CTAP), the U.S. government pays $0.03 per kg of cotton, while 8.3 billion kgs of cotton were produced in 2021 in the U.S.

Using Figure 1, identify the per-unit subsidy for tickets.

Using Figure 1, calculate the total cost of this travel subsidy to the Austrian government.

To address mounting environmental issues, the Austrian government is even considering using consumer nudges to increase the use of cleaner and more sustainable forms of transport by Austrian citizens.

Define the term nudge.

Text C, Paragraph 1:
To address concerns over market volatility, the South African government imposed a price ceiling on maize and a price floor on wheat. The goal was to protect consumers from rising food costs and ensure fair prices for farmers.

Describe the difference between a price ceiling and a price floor as indicated (Text C, paragraph 1).

Text D, Paragraph 3:
The Nigerian government collected significant government revenue from taxes on oil exports in 2022. The revenue was allocated to large-scale infrastructure projects, including building new roads and improving the education system.

State two ways the Nigerian government uses its government revenue from oil exports, as found in (Text D, paragraph 3).

Over the recent years, housing crises have become increasingly prevalent across Europe. House prices and rents have been rising in every single EU member state. In Greece, rents increased by 37% between 2018 and 2022.

Figure 1 below shows the demand and supply for rented housing in Athens, Greece. The monthly market-determined rent for properties in Athens is at €14 per square meter.

To deal with the surging housing costs and to ensure affordability of housing, a most basic good, authorities in Greece are considering implementing a rent control. The Athens municipality is looking into setting the monthly cap on rent at €10 per square meter.

Using Figure 1, calculate the resulting shortage.

Figure 1 below shows the demand and supply for rented housing in Athens, Greece. The monthly market-determined rent for properties in Athens is at €14 per square meter.

Using Figure 1, calculate the change in producer surplus following the imposition of the rent control.