Essay Plans Flashcards
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Introduction: Definitions
Oligopolistic markets - Oligopoly markets are markets dominated by a small number of suppliers
Incumbent firms - firms already established in each market or industry
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Analysis 1: High barriers to entry. Discourage firms
- Makes price competition by new firms more difficult as there are less able to gain the economies of scale.
- Unable to compete due to low output initially. Possible predatory pricing but unlikely due to price stability and interdependence
- Kinked Demand Curve 
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Evaluation 1: Firms face kinked demand curve
- If they increase price, other firms will not follow, they will lose sales and market share.
- Interdependent decision-making. Price stability + profits suggest price is ‘high’ and attractive to new entrance.
- Firms have no incentive to change prices away from profit maximisation, so price stability results
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Analysis 2: Collusion may not be that concentrated
- Due to many firms within the industry, space for collusion could be limited and the oligopolistic market could be more competitive
- Easier for new entrants
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Evaluation 2: Collusion may be very strong already (tacit)
- Strategical alliances, we’re firms corporate legal way, are often about reducing costs, increases the difficulty for new entrance to join. Especially when there are fewer firms within the market.
- Even if tacit collusion isn’t strong, other ways of competing such as innovation could be seen as collective barriers to entry making it difficult
Evaluate, using an appropriate diagram whether the behaviour of incumbent firms in an oligopolistic market will discourage entry by new firms [25]
Judgment - number of firms within an oligopolistic market
- Depends on the number of firms already in the market.
- More firms (competitive) easier to enter, less concentrated.
- Fewer firms (collusive oligopolies) harder, negotiations of familiar patterns within the oligopoly, harder for new entrants to adapt
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Introduction: Definitions
Indirect taxation - is a tax that is added onto goods and services before they reach the consumer
Producer surplus - how much a person would be willing to accept for given quantity of a good compare to how much they can receive by selling a good at market price
Consumer surplus - difference between the consumers willingness to pay for a commodity and the equilibrium price
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Analysis 1: Impact on Consumer Surplus
- Increases prices of goods. Burden on consumers
- Consumer surplus decreases
- Shown on a diagram
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Evaluation 1: Elasticity of demand
- If the elasticity of demand is more elastic, and more of the incidence of the tax is absorbed for by the producer, and therefore only a small amount will be paid by a consumer.
- An indirect tax may be seem to be more likely fun inelastic product such as petrol cigarettes.
- Products such as cigarettes cause addiction and are therefore inelastic
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Analysis 2: Impact on Producer Surplus
- An indirect tax eats into producer surplus.
- Less revenue and an indirect tax increases producer costs.
- Supply shifts left to cut costs, increasing the price
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Evaluation 2: The burden depends on the elasticity of demand
- If demand is inelastic, producers are able to handover a larger proportion of the tax on to consumers via higher prices.
- PED factors such as substitutes. If vast amount of substitutes elastic if not inelastic
In the UK, petrol and diesel prices are subject to high levels of taxation
Evaluate, using an appropriate diagram, the impact indirect taxation has on the level of consumer and producer surplus in the market [25]
Judgment: elastic/inelastic
- Goods such as petrol are inelastic as they are seen to be necessities.
- E.G.2022 February – March saw a major increase in fuel prices due to the conflict in Ukraine.
- This has seen to have had a slight impact on the quantity demand for fuel. However because of the inelasticity of the good, quantity demanded has only slightly fallen
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Introduction: Definitions
Income elasticity of demand - Responsiveness of quantity demanded to the changes in income (Y)
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Analysis 1: An increase in income may lead to an increase in sales of new cars
- Income increases, new cars increases
- Higher levels of RDI
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Evaluation 1: Increases in RDI usually results in an increase in luxury goods
-Cars may be seen to be a luxury goods or a normal good. Depends on the use whether that’s commuting or whether that’s leisure
-Inelastic and elastic demand curves
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Analysis 2: An increase in income may not lead to an increase in sales of new cars
Tax rate could potentially increase also, might not increase RDI relatively compared to unless the tax rate was unchanged
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Evaluation 2: Minimum Wage??
- Workers who are on minimum wage, without an increase in income may still not be able to afford a new car.
- Could also depend on whether the prices of these new cars have increased also. So incomes not have relatively increased by much which may not lead to an increase in new cars.
- Substitutes include public transport which is accessible
The supply chain crisis has, over the past two years, meant a shortage of components of new cars. This has led to a reduction in output of new cars by most car manufacturers.
Evaluate the extent to which an increase in income will always lead to higher sales of new cars [25]
Judgment: elastic/ inelastic
- ‘Always’? May not always increase, (evident of what has already been discussed)
- depends on how big the reduction in output of new cars by manufacturers is – supply aspect
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Introduction: Definitions
Trade union is an organisation of workers who come together to achieve common goals
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Analysis 1: Trade Union activity DOES lead to higher wages
- Wages increase
- Shown on the Trade Union diagram
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Evaluation 1: Trade Union activity DOES’NT lead to higher wages
- Government policies and their impact on labour flexibility and trade union reduction (The more willing a trade union is to withhold the labour of its members, the more impact of trade union activity has on the labour market)
- Recent decades has seen trade union power reduce and strikes reduce
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Analysis 2: Bilateral Monopoly
Bilateral Monopoly
-Increase success rate, May only be slightly impactful if against a monopsony employer
- The extent of the power of a TU
- Bilateral monopoly diagram
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Evaluation 2: In response to power imbalance a trade union may negotiate to improve better working conditions
(So has influence but not necessarily a financial impact)
WED- Demand for labour, more elastic if a firm can easily substitute labour for capital
Over 50% if teachers are members of a trade union. Over 90% of teachers are employed in schools where salaries are paid by the government and negotiated between trade unions and the government.
Evaluate, using an appropriate diagram, whether a higher trade union membership always leads to higher wages for its members? [25]
Judgment: Negotiate for non-financial benefits. Impact of a trade union
- Higher wages may not be what trade union achieves
- Increasing wages causes some members to be unemployed (surplus of labour) as shown in the diagram
- Impact to be more significant if a monopoly trade union is against a monopsony employer
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Introduction: Definitions
Subsidy- A subsidy is an amount of money provided to firms to help reduce production costs which can then be passed on as lower prices, and which can encourage consumption
State Provision- When a nationalised industry is the main provider of a good or service
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Analysis 1: Subsidy
- How is a subsidy works. Parents pay their share and the government pays the rest, market for education, competition based on price and quality compared to preferences/ income of parents
- Subsidy diagram
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Evaluation 1: Increase in competition may be a good thing for the market of education
- Increase in competition may lead to increase in quality and see the price decrease (if economies of scale are unexploited) - unexploited meaning they aren’t operating on the downslope of the AC curve
- But what if parents can’t afford to finance their part of the subsidy??
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Analysis 2: State Provision
- Education considered a merit hood and therefore under-consumed by the public
- This may change if education is fully funded by state provisions, for these external benefits to be more realised compared to if it was left to the free market (market failure)
- Potential impact of legislation??
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Evaluation 2: Correcting market failure??
- Education has positive spillover effects in society seeing MSB shift rights (positive externality of consumption)
- Increase in consumption, increase in equality
- State Provision needed to supply education at point of use for MSC to shift rights (correcting market failure)
- Positive externalities of consumption diagram
In the UK, 90% of education spending on primary and secondary education is by the UK government, and the remaining 10% by households.
Evaluate whether primary and secondary education should be partially funded by subsidy, or fully funded by state education? [25]
Judgment: Govt objectives, who is worse off if subsidy was implemented?
- Depends on government objectives
- State provision = high quality for all (equality)
- Subsidy = higher quality for rich, (due to increase in spending) but perhaps lower quality for poor, unable to afford to ‘top up’ the subsidy due to the subsidy partially paid for by the government and the rest by parents
