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Economics A-Level > Business examples > Flashcards

Business examples Flashcards

1
Q

How does the UK government foster entrepreneurship?

A

1) introduced StartUp loans programme in 2012, which provides loans to 18-24 year olds
2) introduced the Innovative Finance ISA for P2P lenders in 2016

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2
Q

What has been the impact of the the StartUp loans programme?

A

1) given out 25,000 loans

2) created 32,000 jobs

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3
Q

What has the Innovative Finance ISA for P2P lenders done?

A

Made interest paid by borrowers tax free

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4
Q

How many social enterprises are there in UK?

A

70,000

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5
Q

How much do social enterprises contribute to the economy?

A

£18.5bn

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6
Q

Example of a co-operative

A

Spar

1) 2,400 stores in UK
2) employs over 50,000 people

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7
Q

How many workers in the UK are self-employed?

A

1 in 7

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8
Q

Examples of horizontal integration

A

1) Merger of ITV companies Carlton (£800m) and Granada (£1.9bn) in 2003 to form a single ITV company
2) Takeover of Safeway by Morrison for £3bn in 2003

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9
Q

Examples of a fully vertically integrated company

A

BP is involved in oil exploration, the refinement of crude oil into petrol and the distribution of petrol at its filling stations

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10
Q

Example of lateral integration

A

Google bought Youtube for $1.65bn in 2006

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11
Q

Example of a conglomerate

A

Procter & Gamble owns Always (menstrual hygiene products) and Fairy (washing up liquid)

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12
Q

What is the 4 firm concentration ratio for the film industry?

A

64.7%

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13
Q

What is the 4 firm concentration ratio for the womenswear market?

A

32.4%

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14
Q

What did the horizontal merger to produce Glaxo SmithKline Beecham (GSK) allow for?

A

Significant research economies of scale in the pharmaceuticals sector

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15
Q

Example of a failed horizontal integration

A

1) Daimler-Benz bought Chrysler for $36bn in 1998

2) But management culture was so different that after just 9 years Daimler sold Chrysler to Cerberus

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16
Q

Example of a merger leading to job losses

A

The Leeds-Halifax merger in 1995 resulted in the closure of some branches, particularly where the two societies had branches in close proximity

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17
Q

Example of failed lateral integration

A

1) Microsoft bought Nokia for $9.4bn in 2014
2) Microsoft took a write-down of $7.6bn related to the acquisition
3) Restructuring charge of over $750m
4) Over 7,500 redundancies

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18
Q

Who has found that in general mergers lead to a decline in the profitability of the companies involved?

A

Geoffrey Meeks

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19
Q

Examples of demergers

A

1) The Hanson conglomerate split into four separate firms in 1996
2) British gas split into 2 companies in 1996

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20
Q

What two companies did British gas split into in 1996?

A

1) Transco - responsible for the maintenance of the pipe network
2) Centrica - responsible for gas supply

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21
Q

What companies did Kraft Foods split into in 2012?

A

1) Global snacks business (est. revenue $32bn)

2) North American grocery business (est. revenue $16bn)

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22
Q

Example of external economies of concentration

A

‘Silicon Fen’ (region around Cambridge) is home to a large cluster of high technology based businesses

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23
Q

Example of a firm accessing economies of scope

A

1) Procter and Gamble can afford to hire expensive graphic designers and marketing experts, who can use their skills across many different product lines
2) As the firm’s management structure, design, marketing, administrative systems and distribution costs are spread over such a large product range the average cost of production for each product is lower

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24
Q

Example of markets that approximate perfect competition

A

1) Foreign currency exchange

2) Agricultural produce/farming

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25
Q

Example of increased competition leading to lower profit margins

A

1) Before Aldi (1990) and Lidl (1994) arrived in the UK, the ‘big four’ supermarkets enjoyed profit margins of 7%
2) Now 2-3% profit margins are the norm

26
Q

Examples of monopolies

A

1) UK water companies who are a pure monopoly to domestic customers in geographical
2) Durex which has an 85% UK market share

27
Q

How long can a patent last?

A

Up to 20 years

28
Q

How much does a drug cost to develop?

A

$1.5bn

29
Q

Evidence for the increase in mergers and acquisitions within the pharmaceutical industry

A

The market share of the top ten companies was 28% in 1990 and 44% in 2014 (seeking to benefit from research economies of scale)

30
Q

Examples of firms controlling a scarce resource or input

A

1) The De Beers Syndicate in South Africa formerly enjoyed sole access to the only land on which diamonds could be mined (but now new sources found in Russia and Africa)
2) UK energy companies own power generation facilities due to backward vertical integration

31
Q

How concentrated is the cereal industry?

A

3 firm concentration of 90% has been achieved by Kellogg’s, Weetabix and Nestle as brand proliferation has made it hard for new firms to find a niche in the market

32
Q

Example of a ‘Zombe’ firm

A

1) US steel industry threatened by the cheap imports of steel that poured into the USA in the late 1990’s
2) Bethlehem steel continues to operate due to the massive burden of legacy costs with 70,000 pensioners and 130,000 members of its healthcare plan
3) Its long-term liability totalled almost $10bn hence closure cost exceeded the cost of running the steel mill
4) Only closed operations in 2001 when declared bankrupt

33
Q

Examples of natural monopolies

A

1) Network Rail (rail system)

2) National Grid (electricity and gas)

34
Q

Example of perfect/first-degree price discrimination

A

An e-Bay seller will capture the entire consumer surplus of the successful bidder if the auction is hotly contested

35
Q

Example of second degree price discrimination

A

Football stadiums in the lower divisions who offer £1 admission for children accompanying adults (‘kid a quid’)

36
Q

Example of third degree price discrimination

A

1) Off peak and on peak rail travel (time barriers keep the two sub-markets separate)
2) In 2015 the European commission found that Disneyland Paris charged British holidaymakers up to 40% more than French tourists

37
Q

Examples of duopolies

A

1) Aircraft manufacturers Airbus and Boeing

2) Pepsi and Coca-Cola

38
Q

Example of an oligopoly

A

1) 95% of the salt/grit to local councils is supplied by three main firms - Salt Union (50%) Cleveland Potash (35%) and Irish Salt (10%)

39
Q

Example of game theory being used

A

1) Auctioning of 3G mobile phone licenses by the UK government in 2000 raised £22.5bn (much more than expected)
2) Auction took place in a sequence of rounds, in which participants bid simultaneously for one of the five licenses and the highest bidder was to remain inactive in the next round until there were no more bids

40
Q

Example of a cartel

A

OPEC, a group of petroleum exporting countries, sets production quotas for member countries to regulate the world price of oil

41
Q

UK energy market

A

1) 6 firm concentration ratio of 95% (‘Big Six’)
2) CMA found that between 2009 and 2013 the Big Six collectively charged households £1.2bn a year more than they would have in a competitive market

42
Q

Example of collusion being in the public interest

A

1) Cartel of the Premier League clubs protects the weakest clubs who would struggle to gain television revenue otherwise (previously weaker clubs were penalised)
2) BUT UK fans pay the highest prices in Europe to watch football on TV

43
Q

Examples of non-price competition

A

1) Supermarkets have issues loyalty cards (e.g. Nector and Tesco Clubcard)
2) Magazines use free gifts to entice people to buy a copy

44
Q

Example of contestablity

A

In 2015 Jetstar prepared to enter the industry and Air New Zealand cut its regional air fares by up to 40% ahead of Jetstar’s announcement of where it planned to fly in the country

45
Q

Example of the theory of second best

A

1) In the 1960’s the UK has a sizeable proportion of economic in the hands of state owned industries who implemented a marginal cost pricing policy
2) Since so many private sector firms prices their products above marginal cost this could have resulted in an over consumption and production in the nationalised sector

46
Q

Example of firms with monopsony power

A

1) Supermarkets such as Tesco, Asda and Sainsbury
2) Investigation by the CMA led to the Grocery Supply Code of Practice (implemented 2002) which means that large retailers (with annual sales of over £1bn) are now obliged to deal fairly and lawfully with their suppliers
3) Groceries Code Adjudicator has the power to fine any of the top 10 supermarkets up to 1% of their annual turnover for breach of the Code

47
Q

Example of producers subject to monopsony power

A

1) Dairy farmers producing a homogenous product are price takers
2) In August 2015 farmers were losing 7p per litre of milk sold as production costs exceeded what they were paid
3) BUT low prices also attributed to the over supply of milk in Europe

48
Q

Example of countervailing power

A

Tendency for powerful sellers to emerge to balance the strength of powerful buyers (e.g. the emergence of large nursing home groups such as Care UK in response to local authorities purchasing 63% of care home places and paying as little as £2.50/hour/resident)

49
Q

How has technological change led to the low price tickets of budget airlines?

A

1) Emergence of Ryanair and easyJet in the 1990s coincided with the growth of the internet
2) Passengers booking, checking-in and printing their boarding passes online saved the airlines huge amounts of money
3) Internet also allows airlines to vary the cost of flights to passengers according to their demand, which increases ‘load factors’ and hence revenue

50
Q

Example of deregulation being ineffective in increasing competition

A

1) UK bus services deregulated in 1986
2) A 2014 report by the IPPR argues that deregulation had not resulted in a competitive market
3) 37% of weekly bus services outside London do not face any real competition
4) Only 1% of weekly services actually had genuine competition on all or most of their routes
5) Between 1995 and 2013 bus fares outside London rose by 35% above inflation

51
Q

What key industries were privatised under Thatcher when she came to power in 1979?

A

British Telecom, British Gas, British Steel, water supply, electricity distribution, British Airports and railways

52
Q

Privatisation of Royal Mail

A

1) Sale completed in October 2015

2) Raised £3.3bn, with 12% of the shares own by Royal Mail employees

53
Q

Example of internal markets being used

A

1) Introduced in the NHS in 1990
2) Government gives the money for the NHS to organisations called Clinical Commissioning Groups (CCGs) to buy services from providers (e.g. hospitals)
3) Idea of having the buying power in the hands of the CCGs is that it will create an effective internal market leading to competition between providers leading to a decrease in costs and an increase in quality

54
Q

When did most of the privatisation in the UK take place?

A

1979-1997

55
Q

What were the proceeds from privatisation between 1979 and 1997?

A

£90bn

56
Q

What benefits have been accrued from privatisation in the UK?

A

1) Firms that were loss making under public ownership began to make a profit (study of 33 privatised enterprises found they absorbed £500m of public funds annually and £1bn in loan finance prior to privatisation)
2) Real prices of gas and electricity fell in the 1990s due to increased competition

57
Q

What did former Energy Secretary Chris Huhne say about energy prices?

A

They had gone ‘up like a rocket and down like a feather’ in response to changes in wholesale prices

58
Q

Example of customer inertia

A

Despite websites such as www.simplyswitch.com many domestic consumers overpay on their energy bills

59
Q

What has been the impact of the privatisation of the water industry in 1989?

A

The average household customer paid 18% more in real prices in 2009-10 than 2004-05

60
Q

Impact of privatisation of railways in 1997

A

1) Rail fares have risen in real terms since 1997

2) Cost of a Milton Keynes to London season ticket has risen by 23.5% 2010-1015

61
Q

Example of regulatory capture

A

In 1998 Peter Davis, the head of OFLOT the lottery regulator, resigned after it emerged that he accepted free flights from GTech, the parents company of Camelot

Economics A-Level (10 decks)

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