22 Real World Examples for Microeconomics 2024

Here are some real world examples to revise ahead of microeconomics paper 1 exams. Great for scoring those application marks!

Particularly for those essay questions without long extracts. That’s section C in Edexcel A Paper 1 and section B in AQA.

For application, you can remember 1) industry trends, 2) company names and their actions and/or 3) statistics.

If you have limited time, focus on learning industry trends and what companies in the industry are doing. Make use of the industries you’re most familiar with.

1) Negative externalities – air pollution from cars and production

Air pollution can be a negative externality in consumption (from car use) and a negative externality in production (from factory pollution). A car produces about 10% of its carbon dioxide emissions during production, 5% during disposal and 85% during the car’s use period.
Air pollution is linked with over 11% of all deaths around the world, including through worsening breathing problems such as asthma. 21 billion US dollars a year is the global healthcare cost associated with pollution.
Air pollution can reduce worker productivity and reduce agricultural yields. The result is that the annual number of lost working days, owing to air pollution, is currently around 1.2 billion globally every year.
Moreover air pollution contributes to climate change. This creates consequences in terms of habitat loss, and a greater frequency of severe weather events including flooding and forest fires. Such events could force people to move in large migration events.

I cover negative externalities, including pollution and fossil fuels, in my 2024 practice papers. For practice papers and other A-level Economics resources, click the button below:

A-Level Economics Resources [AQA and Edexcel A style]

2) Positive externality in consumption – education

Education, in theory, raises the human capital and productivity of workers. This benefits firms who can increase output and profits from having more productive workers. The government also benefits from higher tax revenue from more productive workers receiving higher wages.
As a result of these external benefits, there is an up to 11% external annual return (over and above private returns) for education spending.
The UK Government funds state education. The Government also subsidises university level education and has a price cap on university tuition fees for home students of £9,250 per year.
Working age university graduates earn about £11,000 more per year than non-graduates. However there is evidence that the university wage “premium” is falling in the UK – the wage gap between graduates and non-graduates fallen from 1997 to 2019 in all areas of the UK except London.
The premium could reflect a private return to individuals from attending university. It also shows the benefit for governments of higher tax revenue from higher wages from attending university.
Note there could be other reasons for the university wage premium, such as pre-existing differences in average abilities.

3) Positive externality in production – in-work training

Firms may invest in in-work training for private reasons. This includes boosting worker productivity, which can reduce average costs and increase profit.
But in-work training has positive externalities. Other firms, who did not pay for the training, may benefit if they hire workers who have already been trained. In-work training, by improving workers’ human capital, may also increase their wages and hence government tax revenue may rise.
48% of workers did not receive in-work training in the UK in 2022.
Underinvestment in in-work training may contribute to worker shortages in the UK. It can also contribute to workers leaving jobs early. 36% of UK managers who have not received any management training are more likely to leave their current jobs than managers who receive regular management training (according to Ciphr).

4) Tax – sugary drinks

The Soft Drinks Industry Levy (SDIL or “sugar tax”) adds 24p per litre on soft drinks with more than 8g of sugar per 100ml.
As a result of the tax, several companies reformulated their drinks to reduce their sugar content, so they didn’t have to pay the tax. This included drinks like Lucozade and Ribena.
The SDIL raises about £350 million per year in tax revenue.
The estimated price elasticity of demand for sugar sweetened drinks is between -0.8 and -0.9 (Briggs et al. 2013).
Analysis and evaluation points for taxes.

5) Subsidy – automotive and battery subsidies

The UK Government has announced £4.5 billion funding in subsidies for strategic manufacturing sectors, of which £2 billion is going to the automotive industry.
This includes subsidies for battery factories (“gigafactories”) for electric vehicles and general support for development of low emission vehicles. The battery sector could create up to 100,000 high paid jobs in the UK.
Part of the subsidy funds will also go towards self-driving vehicle technology.
Such subsidies will support companies like Nissan, who are making a £2 billion private investment in electric car production in its Sunderland plant.
Tata have announced a £4 billion gigafactory in the UK which comes with up to 4,000 jobs.
Analysis and evaluation points for subsidies.

6) Minimum price – alcohol in Scotland

Scotland has a minimum alcohol price of 50p per unit.
The minimum alcohol pricing is associated with 150 fewer deaths per year on average, a 13% fall in alcohol deaths, according to the British Medical Journal. Hospital admissions due to chronic causes dropped 4%.
Public Health Scotland states about 23 people die from alcohol use each week in Scotland. Those in poorer areas are 5 times more likely to die from alcohol consumption than those living in wealthier areas.
The harms from consuming alcohol tend to be concentrated among heavier drinkers. However, evidence suggests that the minimum price may have had little effect on those with alcohol dependence.

7) Maximum price – rent control in Sweden

Stockholm, Sweden has rent controls that apply only to some “controlled” housing stock.
In Stockholm about 57% of properties are privately owned. However the rest of the properties are under rent control.
The average waiting time on the wait list is 9 years for a controlled property.
There have been reports of bribery to skip waiting lists.
One in five employers say that accommodation shortages prevent them from hiring staff.

8 ) Information provision / advertising – cigarettes

Cigarette companies have to put pictures on packaging to show the health consequences of smoking and use plain packaging.
Evidence from other countries suggests a 0.5% fall in smoking as a result.
The Better Health Quit Smoking NHS campaign is a public campaign encouraging adults to quit smoking. This includes posters and wallet cards given to smokers.
Public Health England also launched a “Stoptober” annual campaign to encourage mass quitting of smoking. From 2012, Stoptober led to 2.3 million attempts to quit.

9) Pollution permits – UK and EU Emissions Trading Schemes

For the UK firms that participated in the EU’s Emissions Trading Scheme (EUETS) before the U.K. left the EU: pollution fell from 236 million to 130 million tonnes per CO2 equivalent.
The UK, having left the EU, now has its own pollution permits scheme, the UKETS.
The UK Government plans to reduce the number of permits for each sector over time.
However some firms receive free permits, such as ExxonMobil receiving £160 million in free permits and Shell receiving £30 million.

10) Monopoly – Google in internet search

Google has market power in internet search advertising, with 92% market share worldwide in internet searches.
Google’s dominance has been put down to the quality of its search algorithm early on, network economies of scale and good timing. Network economies of scale mean that the more users a search engine has, the more interest from advertisers and other users. The economies of scale of Google make it a natural monopoly.
Google and Facebook have been found to charge up to 30% higher for each click through from online advertising (compared to companies like Bing).
The European Commission fined Google 2.4 billion euros for abusing its dominant position as an internet search provider. Specifically, in giving another of Google’s products, a shopping comparison service, a prominent placement in search results.
Analysis and evaluation points for monopoly.

11) Oligopoly – supermarkets and construction

The five largest supermarkets in the UK have a five firm concentration ratio (combined market share) of 66%. However the industry has witnessed the growth of new entrants such as discount chains Aldi and Lidl.
Some supermarkets were fined a sum of £50 million back in 2011 for fixing dairy prices.
The CMA has been investigating loyalty schemes, such as Clubcard and Nectar. These schemes allow some customers to access discounts. The CMA suggests this could make it harder for consumers to compare prices between supermarkets and may investigate the fairness of a two-tier pricing system.
Another example of oligopoly is among construction suppliers. The Competition and Markets Authority has found evidence of collusion among construction supplier companies Vp and MGF who were sharing information on future pricing strategies. This led to a total fine of £15 million. These companies supplied groundworks products such as those for building foundations or laying pipes for homes and roads.
This was the fourth time in two years that the CMA had fined a cartel in the construction sector. Tight profit margins may act as an incentive to collude in the industry.
Analysis and evaluation points for oligopoly.

12) Monopolistic competition – hair and beauty

There are 46,000 hair and beauty businesses in the UK in 2021. Hairdressing contributes up to £6.6 billion to the UK economy per year.
Hairdressers sell similar services. But the services may be differentiated e.g. depending on the quality of the haircut, the interior or comfort in the salon or upsells such as a particular shampoo or hair product.
The UK hairdressing industry has a mix of independent stores, as well as chains such as Toni and Guy
Should hairdressers need a licence to cut customers’ hair? The British Barbers Association states this would improve quality of service. This would also increase barriers to entry.
Analysis and evaluation points for monopolistic competition.

13) Perfect competition – Etsy

There were 7.5 million sellers on the Etsy online marketplace in 2022.
While there are no examples of perfectly competitive markets, online platforms like Etsy may be some of the closest.
Etsy businesses have high startup and failure rates, with 74% of Etsy shops failing.
Etsy has low barriers to entry. To set up an Etsy shop, you just need to set up an Etsy account and set up an online shop (including payment methods and product listings). This can all be done within one hour.
Analysis and evaluation points for perfect competition.

14) Contestable markets – banking and airlines

Technological change led to the development of online banking. This removed the need for an in-person bank branch. This lowered barriers to entry in financial services. So lots of new challenger banks entered the market. This includes Starling, Atom Bank and Monzo. These make use of banking / financial service apps and achieve high customer satisfaction.
Deregulation of airlines in the 20th century led to increased competition from airlines like Ryanair and Easyjet. These “budget” airlines took a significant market share, by lowering upfront prices but charging more for “extras” like extra luggage.

15) Price discrimination

Railcards for UK train rides for groups such as 26-30 year olds offer a discount of a third on certain trains.
Off-peak train fares are typically cheaper than peak train tickets.
Another example is Uber, which uses “surge pricing” to charge higher prices when there is higher demand. The firm faced criticism when prices rose by 300% in New York in the middle of bad weather.

16) Business objectives – Apple, tech and ESG

A firm like Apple may be viewed as maximising profit. 25% of its profits go out as dividends, a relatively high proportion. The CEO of Apple, Tim Cook is awarded £45 million in target compensation for 2023, which is mostly from shares. Apple has used some profits to reinvest. For example, it has improved its chips, with the new M2 Pro and M2 Max, as well as software features.
Several technology companies including Uber, Spotify and AirBnB have pursued the so-called “blitzscaling” business model, focusing initially on maximising sales and market share while making little in the way of profits. Spotify made losses for each of its first seven years in business. The firm maximised users by offering cheap or free music. After a while, Spotify then raised prices and put significant restrictions on what could be done for free in the app (limited repeats, no downloads to offline mode).
At the same time, more firms are making environmental, social and governance (ESG) objectives a key part of their business goals, with over 30% of firms including ESG measures in their key performance indicators in 2021 (Cohen et al. 2022).

17) Competition policy – two examples

The Competition and Markets Authority had decided to block the acquisition of Activision Blizzard, a game developer, by Microsoft. The CMA was worried that Microsoft could make Activision Blizzard’s games, which include the famous Call of Duty series, exclusive to Xbox. However, when Microsoft made concessions to the CMA, the CMA later allowed the acquisition to go through.
Ofwat limits the prices that water companies can charge, prices which are set every five years. But water companies have faced criticism for underinvestment in spite of rising profits and CEO pay. Water companies in the UK made £2.8 billion in profits in 2021, with bosses at water and sewage companies seeing a salary rise of 27% compared to 2020.

18) Privatisation – the water industry

The water industry was privatised in 1989 in the UK.
Between 1991 and 2019, dividends paid to shareholders totalled £57 billion. This was almost half the amount spent on investment in water pipes and treatment over the same time frame.
Water bills have risen 40% in real terms since privatisation, according to the National Audit Office.
Companies like Thames Water and Southern Water have been fined for sewage discharges into rivers. Some have called for companies such as Thames Water to be renationalised.
However yearly investment in water and wastewater sectors has nearly doubled following water privatisation in 1989.
Privatisation may be more effective with improvements to regulation. The regulator Ofwat, who enforces a price cap, has been criticised for keeping water bills low with low price caps instead of allowing companies to invest more. The regulator may need more powers to punish water companies and company bosses for polluting water or mismanagement.
Analysis and evaluation points for privatisation and nationalisation.

19) Minimum wage – UK

The National Living Wage (the minimum wage for those aged 21 and over in the UK) is £11.44 as of 1 April 2024.
1.6 million workers, or about 5% of the UK workforce, are paid at or below minimum wage.
45% of all minimum wage work is in retail, hospitality and cleaning and maintenance operations. (Source: Low Pay Commission).
In 2024, the UK Government published a list of 542 firms who had failed to pay the National Living Wage. Companies had to repay over £16 million to workers and some companies received fines of up to 200% of their underpayment.
Analysis and evaluation points for minimum wages.

20) Trade union – UK and Aslef

In 2017 Britain had its lowest level of strike activity since the 1890s with only 33,000 workers striking in that year.
Yet in 2022 and 2023, strike activity in the UK has picked up significantly, in part owing to higher inflation and potentially large real terms pay cuts.
Railways, buses, waste and recycling crews, dockers, councils and postal services have all been affected by strikes. An example is the main train drivers’ union, Aslef – in a strike action, their drivers refused to work overtime. Aslef have argued that the 4% pay rises offered have been below the rate of inflation.
48.6% of public sector workers are in trade unions in the UK. This compares with only 12.3% of private sector workers.

21) Poverty / income inequality

[Please note that for Edexcel A, this comes under macroeconomics]

Statistics
- In 2021/22, 13% of people in the U.K. were in absolute poverty before housing costs are considered (rising to 17% after housing costs).
- The UK’s Gini coefficient for income inequality is 0.36 for 2021/22. The UK’s Gini coefficient rose during the 1980s from 0.24 to 0.34.
Causes :
- Education: more than 70% of children from the top 10% richest households achieve 5 good GCSE grades compared with below 30% for poorest 10% of households.
- The tax system: tax rates for capital gains, dividends and self employment can be lower than effective tax rates for employment income in the UK. Also the unemployment trap occurs, as those on welfare may only be £3.29 per hour better off from working compared to claiming Universal Credit
- Discrimination: 16% of migrants to the U.K. perceive their group to be facing discrimination, according to the Migration Observatory.
Solutions:
- Education and training: Rishi Sunak, the former Prime Minister of the UK, wants all students to learn maths until age 18 as a compulsory subject.
- Tax and welfare changes: increasing the Personal Allowance, the minimum amount of income before any income tax is paid, or lowering income tax thresholds for high earners so that more people pay the 45% pay tax.
- Compulsory pay gap reporting: firms with more than 250 employees must report their gender pay gap in the UK.
- Anti-discrimination law (Equality Act 2010 for the UK).
- See also the minimum wage and trade union sections.
Wealth inequality:
- in 2020, the richest 10% of households held 43% of wealth.
- Inheritance tax has a standard rate of 40% and charged on inherited wealth above the threshold (a threshold which can vary from £325,000 to £500,000 depending on the circumstances).

22) Nudges

[only for AQA and not Edexcel A]

UK pensions for employees moved from opt-in to opt-out. This led to 5.4 million more people saving via workplace pensions.
Tax prompts, such as using social norms, to encourage taxes to be paid on time led to £300 million of tax revenue being brought forward (as opposed to being paid late).
Organ donation has moved from opt-in to opt-out in countries such as the Netherlands. While donor rates have increased in some other countries, this actually decreased donor rates in the Netherlands (so the policy backfired).
Analysis and evaluation points for nudges.

Note there are a few other examples you may wish to add. These include public goods and monopsony.

For macro real world examples, click the link here.

If you found this useful, check out my other A-level Economics resources here:

A-Level Economics Resources [AQA and Edexcel A style]

How do I remember real world economics examples?

If you can remember the names of key companies in the sectors you’re discussing, that can be helpful to begin with.

Then, try applying the question to markets you’re most familiar with.

Perhaps you own a particular phone brand and know about its features. What do you know about the competitors in social media? What do you know about universities or a particular industry you’re interested in?

If you have a phone, think about the apps on there. Perhaps you have social media apps, banking apps, streaming apps, transport apps.

Think about the items you may buy on a weekly or daily basis – food, drinks and these markets. Where do you spend your time, whether that’s education, video games, shopping, sports, reading books or other hobbies? Where do you spend your time?

What are the market structures of these markets and what kinds of new features have they introduced? Who are the new firms and the established firms in the market?

In short, use your interests and consumer habits to your advantage! This will make examples easier to remember.

You should also read around economics and do lots of practice questions.

The practice question extracts will help give you ideas of real world examples.

The long extract-free essay questions give you an opportunity to see what examples you can actively recall.

I have limited time – which real world economics examples should I focus on?

Start with what you already know – the names of companies in sectors you are familiar with.

Then I’d recommend adding one key fact about each real world example you have.

These can include statistics. However this does not need to be a statistic. It can also be an industry trend.

For example in banking, there has been a wave of new entrants such as Starling and Monzo. These can be easier to remember.

Thank you for reading!

For more A-level Economics resources, including practice papers, you can view the link here.

About the author

Tom Furber

Helping economics students online since 2015. Previously an economist, I now provide economics resources on tfurber.com and tutor A Level Economics students. Read more about me here.

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Key sources

Some sources for some of the key data above or where to go to find more information:

Strauhmanis, E. (2016). The economic consequences of outdoor air pollution POLICY HIGHLIGHTS. [online] OECD. Available at: https://www.oecd.org/environment/indicators-modelling-outlooks/Policy-Highlights-Economic-consequences-of-outdoor-air-pollution-web.pdf.

www.ciphr.com. (2022). 25 Employee training statistics in the UK. [online] Available at: https://www.ciphr.com/infographics/employee-training-statistics#:~:text=Employee%20training%20statistics%20in%20the%20UK%20in%202022.

Oxford Economics (2016). THE ECONOMIC IMPACT OF THE SOFT DRINKS LEVY. [online] Available at: https://www.britishsoftdrinks.com/write/MediaUploads/Publications/The_Economic_Impact_of_the_Soft_Drinks_Levy.pdf.

WHO (2023). No place for cheap alcohol: Scotland’s minimum unit pricing policy is protecting lives. [online] www.who.int. Available at: https://www.who.int/europe/news/item/26-07-2023-no-place-for-cheap-alcohol–scotland-s-minimum-unit-pricing-policy-is-protecting-lives.

Anderson, I. (2022). Stockholm’s ‘Housing for All’ Is Now Just for the Few. Bloomberg.com. [online] 3 Sep. Available at: https://www.bloomberg.com/news/articles/2022-09-03/stockholm-s-rent-controlled-housing-guarantee-has-a-catch.

Revell, E. (2020). Sweden’s disastrous experiment with rent controls should be a cautionary tale for London. [online] CityAM. Available at: https://www.cityam.com/swedens-disastrous-experiment-with-rent-controls-should-be-a-cautionary-tale-for-london/

The University of Chicago Booth School of Business. (n.d.). Does Google Have Too Much Market Power? [online] Available at: https://www.chicagobooth.edu/review/does-google-have-too-much-market-power.

Britishbarbers.com. (2019). News – Economic Impact Assessment of the Hair and Beauty Sector on the UK Economy | British Barbers’ Association. [online] Available at: https://britishbarbers.com/news/economic-impact-assessment-of-the-hair-and-beauty-sector-on-the-uk-economy-86.

European Commission (2017). Antitrust: Commission fines Google €2.42 billion for abusing dominance as search engine by giving illegal advantage to own comparison shopping service – Factsheet. [online] European Commission – European Commission. Available at: https://ec.europa.eu/commission/presscorner/detail/es/MEMO_17_1785.