Archive forsubsidies

Because the state has regulated the petrolium price and decided to increase it, Uber has decided to reimburse its drivers based on several levels. There is an 48.6% increase on octane 80, 39.2% increase in octane 92, and 30.5% of diesel. In order to maintain and promote its business and prevent economic loss from happening, Uber Egypt division has decided to reimburse its drivers. This follows the rule of subsidies, drivers are mostly taxed as their demand of petrolium is very inelastic, as a result, they get the most of compensation. Uber create incentives for drivers to drive more as their current policy is that the more trip you drive, the more subsidies you get. This is a clear demonstration of an attempt of creating incentives and trying to main economic profit while new policies are in effect.


Rideshare Apps Taxed

Uber has become increasingly popular in many Latin American nations. “In just two years in Mexico City, the ride sharing giant has become an integral part of urban life, with around 50,000 drivers navigating the megacity.” Mexico City was the perfect place to implement Uber because it has low rise housing across an urban sprawl. Another reason why Uber has been so sucessfull in Mexico City is due to tradtional street taxis being assocaited with kidnappings. Since Uber provides many safety features for it’s users, it has been able to attract many consumers. Altouugh Uber is such a huge success, many tradtional taxi companies view it as threat to their businesses which is why in Mexico City imposes taxes on rideshare apps. Up to 1.5% of revenue for rideshare apps is taxed by the Mexican goverment. While demand is increasing for Uber, it is a threat to other businesses which is why the goverment taxes Uber.


Subsidy to green energy can be counterproductive

“Paying for waste”

Renewable energy like wind energy and solar energy have positive externalities on the environment, in contrast to fossil fuels that can cause pollution. Thus, subsidies to green energy is a very common policy to increase social surplus.

However, subsidy alone can be counterproductive. Electricity cannot be largely stored, so it must be produced and consumed at the same time. Thus, producers need reliable means to produce backup energy, which is mostly  generated by burning fossil fuels. Subsidy shifts the supply curve downwards, reducing the market price. When higher quantity of electricity is demanded, more backup energy produced by burning fossil fuels are demanded. In the end, the positive externality brought by green energy is likely to be undermined by the negative externality caused by burning fossil fuels.


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Reactions to the Open Economy

The article, An Open and Shut Case, describes how numerous industries in North America have lost out due to to Globalization. Textile mills were thriving in the early 20th century and began moving south of New England. However, by 1982, completed diminished from North America. Why? Companies found workers willing to work longer hours for cheaper wages throughout Latin America and Asia. The textile industry was not the only one lost out, about 2-3 decades ago local makers of cabinets, dressers and the like lost sales to Asia, where labour-intensive production was cheaper. “In the 2000s half of Thomasville went to China,” says T.J. Stout, boss of Carsons Hospitality, a local furniture-maker in Thomasville, North Carolina. This open economy is full of promises and casualties. Many small business owners complain that America gets the raw end of trade deals, and that foreign rivals benefit from unfair subsidies and lax regulation.

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The pollution in Delhi dued to burn-off of rice stubbles

The pollution in Delhi primarily is caused by the smoke from the burning of rice stubble in surrounding farmland and the traffic pollution. The annual average PM 2.5 in Delhi doubles annual average in Beijing. The negative externality of rice and car production will be the pollution in air.

However, due to government’s dread of stopping farmers from burning off stubbles left from rice production. India is the second place in producing rice while Uttar Pradesh, a state which Delhi is in, is the second place in the country. Government’s liability on rice production explains why it doesn’t want farmers to be alienate.

The fear of shortage in food supply neither help cut the rice production but even encourage it which may trigger more burn-off pollution. Government encourages growing by offering floor prices and subsidies. According to what we learned about subsidies and floor price, there is such a nice market condition for rice production which has a large negative externality in polluting.



Subsidies in Venezuela

For over a decade, the government of Venezuela has used earnings from oil to subsidize consumption goods. Most of the goods have been imported from elsewhere. As the price of oil has fallen in the last two years, these subsidies have become unsustainable. Venezuelan citizens have run out of many important goods from toilet paper to medicines. As this blog post from the Brookings Institution argues, the country is now facing a crisis that could have been prevented.

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