Application (Economic News) Flashcards
1
Q
Predatory Pricing context
A
- in 2019, the big 4 were accused of anti-competitive pricing by deliberately under-pricing audit work to make it more challenging for other firms to compete
2
Q
Collusion context
A
- in 2020, apple was fined 1.1bn euros for colluding with two French wholesalers - they agreed to not compete against each other whilst aligning high prices for ipads and imacs in the French market to prevent other wholesalers competing
- ultimately led to many wholesalers such as eBizcuss being forced to leave the market, reducing competition
3
Q
Current inflation rate (CPI), unemployment rate and minimum wage
A
- CPI inflation at 2.6%
- 4.4% unemployment
- 12.21/hour
4
Q
Current corporation tax and VAT
A
- corporation tax - 25%
- VAT - 20%
5
Q
Deregulation context
A
- Airline Deregulation Act (1970) allowed several firms to join the market which triggered the rise of ‘budget’ airlines
- this forced incumbent firms to lower ticket prices to attract customers, increasing consumer surplus -> productive and allocative efficiency
6
Q
Privatisation context
A
- UK water industry was privatised in 1989 - before this water quality in UK was poor
- after privatisation, there was a 160bn pound investment to improve water quality - positive externality
7
Q
Government failure context
A
- EU introduction of an Emissions Trading Scheme
- following the 2008 financial crisis, there was a huge fall in economic activity -> firms needed less permits -> price of permits fell drastically -> it was cheaper for firms to buy permits and continue polluting than finding ‘cleaner’ ways to produce goods
8
Q
Covid impact on inequality context
A
- coronavirus has exacerbated the North-South divide in the UK, as most people in London work in the services sector, so can work from home
- in contrast, many Northern households have jobs in the manufacturing industry, so have been made redundant (structural unemployment) -> increased inequality
9
Q
Monopsony power context
A
- the Big 4 supermarkets have about 70% of the market share and are the sole supplier of food from farmers
- therefore they can negotiate much lower prices for goods (milk, eggs, etc.) to increase their profit margins
- farmers protest that they are being exploited
10
Q
Contestability context
A
- technological advancements in gaming industry have lowered barriers to entry, allowing new market entrants - market previously dominated by Microsoft and Sony
- Stadia, a subsidiary of Google, allows players to download games on mobile devices without upfront hardware costs
- however, Xbox and Playstation accused of enforcing strategic barriers to entry (predatory pricing), stunting Stadia’s growth
11
Q
Negative production externality context
A
- in 2010, BP accidentally spilt 35,000 barrels of oil in the Gulf of Mexico
- they had to pay $4bn to clean it up and $5bn in penalty
- the negative externality was $700 million lost in tourism and fishing revenue -> 3000 job losses
12
Q
Education context
A
- estimates suggest that for each additional year in education, there is an 18% in GDP per capita
- current spending on education by UK gov is 4.1% of national income
- leads to innovation, adoption of new technologies and enhanced growth
13
Q
Government intervention context in energy market
A
- in 2014, OFGEM referred the energy industry to the CMA as they questioned whether there was enough competition - concerned about market structure as big companies could both generate and supply electricity - concerned of firms overcharging other firms for energy whilst keeping their own prices lower
- in 2016, CMA found customers had been paying £1.4bn a year more than they would in a fully competitive market - they set reforms to increase efficacy e.g. price comparison websites and temporary price caps for some customers
14
Q
Government intervention in audit industry
A
- in 2018 the CMA believed there was insufficient competition in tax audit sector - high barriers to entry - oligopoly
- the big four conducted 97% of big companies’ audits and collected 75% of consulting revenue
- CMA proposed measured to increase competition and quality by e.g. suggesting firms split audit and consulting
15
Q
Taxing demerit goods context
A
- duties on alcohol and petroleum
- on average, a 1% increase in price of alcohol results in 0.5% fall in demand (inelastic PED)
- fuel tax raises £30bn a year - 15% of global CO2 from cars
- around 30% of fatal car crashes in America involve drink driving
16
Q
HS2 context
A
- high-speed railway project connecting London with Birmingham
- aims to reduce journey times and increase reliability and frequency of services
- will use zero-carbon electricity, contributing to the decarbonization of the rail network
- set to finish between 2029 and 2033
- will increase geographical mobility of labour, provide job opportunities, encourage FDI, lower costs for firms
