Exam Q Paper 1

Question 1

Access the factors necessary for the success of a cartel (12)

Answer 1

A cartel is a group or firms collude with one another. Collusion is when firms will fix a high price by restricting their output and behaving as if they were a monopoly

One factor is needs to be an oligopoly and the biggest firm in that market must be part of the collusive agreement for it to succeed. Cartel won’t work unless eg Tesco is involved because if Tesco is not involved and others start to collude, Tescos prices will be lower than other firms colluding so people switch to tesco so no sense to collude without Tesco.

Then draw or just mention prisoners dilemma.

Eval: However games like prisoners dilemma illustrate that cartels tend to break down in the long run because there is always and incentive of one of the firms to undercut the other to gain profits and their expense and there’s also an incentive to whistleblow so they gain immunity whilst rivals get heavy fines.

Another factor is good being sold needs to be price inelastic as if demand for a good was elastic and you raise price a little bit then there will be a more than proportionate decrease in demand for your good and end up with less revenue and profit

EVAL: In LR good is likely to become more elastic eg oil used less as ppl switch to electric cars or bad reputation sees improvements like better quality in LR

Question 2

When do you use kinked demand and explain it

Answer 2

-Use for eval for any price strategy
-Use for question like why girl not adjusting (raising/decreasing price)

-Kinked demand says it doesn’t make sense for oligopolies to try and compete with one another through prices and shouldn’t engage in pricing strategies as it’s a bad idea.

-Kinked diagram with point A
Above A it’s elastic and below is inelastic

-If Tesco raises their prices others won’t follow so they will lose customers and if Tesco lower prices then other customers will also lower prices
-If all other firms lower price then they won’t see a dramatic shift in demand so below is inelastic

Question 3

Evaluate the microeconomic effects of mergers in a market of your choice

Answer 3

Horizontal integration is when 2 firms merge that are in the same industry and same stage in the production process

Question 4

Industry’s outside knowledge

Answer 4

> Perfect Competition
-Agriculture – e.g., wheat, corn, or other commodity markets

> Monopolistic
-Restaurants
-Hairdressers
-Retail clothing
-Small local shops
-Cafes

> Oligopoly
-Supermarkets – Tesco, Sainsbury’s, Asda, Aldi
-Telecoms – BT, Vodafone, O2, EE
-Energy suppliers – British Gas, EDF, E.ON, Octopus
-Airlines – British Airways, easyJet, Ryanair

> Monopoly
Water companies
-Thames Water (regional monopolies)
-Network Rail

> Contestable markers
-Taxi services (Uber vs black cabs)
-Online retail (Amazon vs smaller e-commerce)
-Streaming services (Netflix, Disney+, etc.)

> Labour market
-NHS (public sector pay)
-Tech companies (e.g. wage inequality in Google, Meta)
-Gig economy – Uber, Deliveroo, etc. (zero-hour contracts, worker rights)