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economics > Examples for exams Micro > Flashcards

Examples for exams Micro Flashcards

1
Q

Give an example of scarcity and it’s economic significance

A

Water scarcity in India. Affects famers and households where ground and surface water has dried up. Water prices have increased burdening farmers and households. Incr. demand from pop growth, drought and poor monitoring of water resources are driving sources. Saudi Arabia and South Africa are also facing similar concerns.
- Scarcity and resource allocation
-opportunity cost and choices
- Impacts on D/S and price -sustainability
- solutions to scarcity incl. tradeoffs

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2
Q

How do Peleton bikes show a left shift in demand?

A

The demand for peleton bikes has fallen after bad reports of dangerous mechanical faults and a return to usual work sceduals after the pandemic, with less time available for home exercise, reducing the willingness of consumers to purchase exercise bikes.

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3
Q

How do print newspapers show an inwards shift of demand?

A

Demand for print newspapers has been on the decline for the past decade given cheaper substitutes online and new trends to access news via social media.

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4
Q

How does student housing demand show a leftwards shift?

A

Demand has reduced given higher tuition fees and incr. in the general cost of university education. This has led many to chose universities closer to home where they can live with parents.

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5
Q

How does demand for non-dairy milk/ non-alcoholic drinks show a rightwards shift of demand?

A

it has seen rapid growth with new health trends towards veganism and cutting back on unhealthy dietary inclusions.

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6
Q

Why do electric cars and bicycles show a rightward shift of demand?

A

It has risen considerably in the UK given the gov. push towards replacing fossil fuelled powered cars with more environmentally friendly alternatives, as well as due to the rising prices of fuel, incr. the price of a substitute( car travel vs bicycle)

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7
Q

Why does demand for UK housing show a rightwards shift in the DC?

A

It has continued to increase in 2022 due to low interest rates on mogages and gov support schemes e.g. exemption from stamp tax and the Help To Buy scheme for first time buyers. Also demand for those buying multiple properties as an investment in a climate of low market interest rates reducing returns from generic savings instruments. The signalling, incentive and rationing functions of the price mechanism have acted as higher demand with price inelastic supply forced the ave. UK house price up by 10%. Such high prices have subsequently increased demand for rented accommodation as a substitute.

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8
Q

Why have solar panels and wood burners shown a rightward shift of the DC?

A

They have surged in the last year as consumers seek out alternative sources of electricity and ways to heat their homes to combat soaring electricity and gas prices; a demand rise due to substantial increase in substitute prices.

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9
Q

Give 4 examples of products that currently show rightwards shifts of the DCs.

A

-Non- dairy milk/ non-alcoholic drinks
- Electric cars and bicycles
- UK housing
- solar panels and wood burners.

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10
Q

Give 3 examples of products that show a leftwards shift of the DC

A
  • Peleton bikes
    -Print newspapers
    -Student housing
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11
Q

Give 3 examples where rightwards shifts can be seen in the SC

A
  • VAT tax cut for the UK hospitality industry
  • Large subsidies on notable items such as fuel, gas and rice in India
  • Greater number of airlines
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12
Q

Give 3 examples where the SC shows a leftwards shift.

A
  • Ending of subsidies for home solar panels in the UK in 2019
  • Increase in the price of second hand cars and new cars has led to increased costs for car rentals.
  • European gas, electricity and food supplies has been badly hit given sanctions on Russian imports due to the war in Ukraine.
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13
Q

Give 3 examples of where price inelastic demand is shown.

A
  • essential medicines
  • Oil, gas and electricity
  • UK parcel companies
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14
Q

Why do essential medicines show price inelastic demand?

A

There are several cases of pharmaceutical firms like Nostrum and Pfizer massively increasing the prices of essential medicines, in some cases, life saving AIDs and cancer medicines, given patient protection and a profit motivates business objective.

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15
Q

Why do oil, gas and electricity prices show price inelastic demand?

A

Producers such as shell and BP recorded record revenues and profits in 2022 on the back of soaring energy prices in the wholesale markets. Demand is highly price inelastic for these necessity commodities allowing producers to benefit from significant windfalls.

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16
Q

Why do UK parcel companies show price inelastic demand?

A

They reported a larger increase in revenues despite price rises, benefitting tremendously from online shopping trends during coronavirus restrictions.

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17
Q

Give an example where price elasticity of supply can be seen

A

Covid vaccine manufacturing- manufacturers could respond quickly to huge global demand by expanding factory sizes to scale up manufacturing.

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18
Q

Give 3 examples where price elasticity of supply is inelastic.

A

UK housing has price inelastic supply given a large number of production lags and tight planning permission regulations, preventing quick increases in supply to match demand.
Timber prices in 2021 soared , stemming from large increases in global demand, but also a long production lag given the slow growth of new trees
Supply of UK energy- limited stocks and closing of environmentally unfriendly power plants, reducing capacity.

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19
Q

Give 5 examples of complementary goods

A

-printers and printer ink
-razors and blades
- Coffee machines and capsules
- lamps and bulbs
-Game consoles and games

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20
Q

Give 3 examples of substitute goods

A
  • Coca-cola and pepsi
    -Nike and adidas trainers
  • airlines
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21
Q

Give 2 examples of normal goods

A

Foreign holidays
Airline travel

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22
Q

Give 3 examples of inferior goods

A

Own brand food
Bus travel
Staycations

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23
Q

Give an example of an indirect tax and its economic effect

A

In november 2018 the french gov announced plans to raise the fuel duty on petrol and diesel. It was to raise revenue for the french gov and to fight against climate change by reducing fuel related emissions. This policy was met by protests given its regressive impact and further dent into living standards, forcing the idea to be scrapped a few weeks later.
- Indirect, Specific and regressive tax
- inelastic demand
- Market failure policy
-Stakeholder tradeoffs
-policies to reduce budget deficit

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24
Q

give an example of where a subsidy has been used.

A

Vaccinations in Hong Kong. Healthcare provision in hong kong is a mixture of state funded and private hospitals and surgeries. The gov has long offered subsidies for private provision of influenza vaaccinations, given to very young children, but these subsidies are now extended to include pensioners over the age of 50 and all children up to the age of 12, pregnant women and the disabled. They argue it is for equality, where the most vulnerable can protect themselves.

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25
Q

Give 5 other examples of subsidies

A

1.Electric cars in UK and Germany
2.Research and development in the UK
3.Fuel, gas and rice in india
4. Agriculture EU and USA
5. Home insulation UK

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26
Q

Give an example of where a minimum price has been implemented.

A

Cocoa in Ivory coast and Ghana- Responsible for 60% of global cocoa bean supply. The price of the beans directly impacts income of producers so both govs. introduced a minimum price to protect farmers. Was reduced to $1.36/KG due to falling demand. Farmers are supplemented with an income top up of $400 per ton above the price sold.

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27
Q

Give 4 examples of minimum prices other than cocoa in ghana and ivory coast.

A
  1. EU common agricultural policy
  2. Cashews ivory coast
  3. rice Myanmar
  4. Alcohol, Scotland Wales and Ireland
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28
Q

Give an example of where a maximum price has been implemented.

A

Basic food items in Venezuela- Highly interventionalist economy, Put price ceilings on basic products to improve affordability and ensure that everyone has access to staple goods. This however has led to a large black market for smuggled food as this market distortion has led to huge shortages. This is because the rationing and incentive functions of the price mechanism have been supressed.

29
Q

Give 2 examples of where a max price has been imposed other than in Venezuela.

A
  1. Rent control in New York, Berlin and San Francisco
  2. Energy price cap in UK, France, Spain and Portugal
30
Q

Give 5 examples of negative externalities and how much they cost society.

A
  1. Smoking- £2bln- £6bln annual cost to NHS
  2. Drinking alcohol - £3.5bln annual cost to NHS
  3. Unhealthy eating- £6bln annual cost to NHS and £27bln cost to society
  4. Gambling- £1.2bln annual cost to society
  5. Air pollution- £42.88m annual health and social care costs.
31
Q

Give an example of a positive externality.

A

Exercise- There are significant private and external benefits of exercise, including, saving the NHS £100 per person per year, employer benefits of greater productivity and lower absenteeism as well as greater community spirit and social wellbeing.

32
Q

Give 5 examples of positive externalities other than exercise and how they would benefit society.

A
  1. Education- Higher incomes and tax revenue collection
  2. Healthcare and vaccinations- Reduced spread of disease, benefitting wider society
  3. public transport- less congestion on the roads and less pollution
  4. school lunches- Greater productivity, school performance and earning potential
  5. Nuclear/renewable energy- Less air pollution and lower costs of climate change
33
Q

Give an example of a de-merit good

A

Gambling- can be overconsumed and if becomes habitual, creates many mental problems e.g. greater anxiety, stress, family breakdown and financial problems. Many of these issues cause 3rd party costs such as healthcare service costs, and costs to the police service due to gambling related crime.

34
Q

Give 5 examples of De-merit goods other than gambling.

A
  1. Cigarettes
  2. Alcohol
  3. Sugary drinks/ fatty foods
  4. tanning beds
  5. chewing gum
35
Q

Give 5 examples of merit goods

A
  1. Sun cream
  2. healthcare
  3. education
  4. solar panels
  5. home insulation
36
Q

Give 3 examples of public goods.

A
  1. Flood defences
  2. Roads
  3. Beaches
37
Q

How are flood defences a public good?

A

Non- excludable; no price can be charged for using them in the FM as 3rd party consumers can benefit without contributing towards their provision and they’re non- rival as they don’t diminish in quantity upon consumption. Results in free rider problem and missing market hence why gov. provisions occur in the UK in flooding sensitive areas. A problem is that comprehensive coverage cannot exist and large scale flooding still occurs in the UK without defences due to limited gov. finances.

38
Q

How are roads an example of a public good?

A

They’re non-excludable as in theory, the benefits of road space cannot be confined to the individual who pays and they’re non- rival as road space doesn’t diminish upon consumption. Roads can be considered a quasi public good, becoming excludable with road pricing such as toll roads seen throughout Europe or electronic road pricing as used in Singapore. Once more roads can be rival during times of peak congestion where road space does diminish in quantity upon consumption.

39
Q

Give an example of common access resources.

A

Forests in malaysia aren’t privately owned, giving rise to the Tragedy of the Commons with common access resources the the forests provide. It has the fastest deforestation rate of any country, mainly due to deforestation and the palm oil industry.

39
Q

Give 3 other examples of common access resources other than deforestation in Kuala Lumpur.

A
  1. Seas and overfishing
  2. air and pollution
  3. lakes/ rivers and toxic waste/ sewage
40
Q

Give an example of where an indirect tax has been used to correct a market faliure.

A

UK sugar tax on fizzy drinks- April 2018, aimed to reduce childhood obesity. taxes to drink producers were,18p/L for drinks with 5-8g/100ml and 24p/L for drinks with >8g/100ml. This increased the cost of production for producers, leading to the reduction of av. amount of sugar in fizzy drinks by 28.8% compared to 2015.

41
Q

How could the introduction of the sugar tax on fizzy drinks in 2018 be evaluated?

A
  1. combination of policies may be more effective in the overall fight against obesity as obesity levels continued to rise even after the tax was implemented.
  2. Information provision is also important alongside for long term benefits.
42
Q

Give an example of how subsidies have been used to correct a market failure.

A

Museums in the UK- been provided with subsidies since 2001 to provide universal free entry to consumers with the intention of boosting public visitor members. Museums educate public, increase patriotism and widen horisons, so have private and external benefits - since subsides have been introduced, museum visits have increased by 184%.

43
Q

Give 6 examples of where a subsidy has been used to correct a market failure other than museums.

A
  1. electric cars
  2. solar panels
  3. public transport
  4. covid vaccines
  5. home insulation UK
  6. R&D
44
Q

Give an example of where regulation has been used to correct a market failure.

A

Plastic waste- In the UK regulations have been used to stop this- Banning plastic stirrers, cutlery and plates and plastic straws was proposed, as well as a recycling scheme where consumers pay extra when buying an item with recyclable packaging and receive the extra money back when the packaging is recycled.

45
Q

Give 5 examples of where regulation has been used to correct a market failure other than for plastic waste.

A
  1. Age limits on alcohol
  2. energy drink bans and junk food advertising bans for children
  3. quotas on fishing and CO2 emissions (EU)
  4. single use plastic bans
  5. forced nutritional info on packaging.
46
Q

Give an example of how state provision has been used to correct a market failure.

A

NHS- healthcare provided by the state overcomes the issues of under-provision and inequality in the FM, funded entirely through taxes .

47
Q

Give 2 examples other than healthcare where state provision has been used to correct a market failure.

A
  1. Education and UK state schools
  2. Free school lunches for vulnerable students in the UK.
48
Q

How were tradable pollution permits able to correct a market failure?

A

Emissions trading scheme in the EU is a cap and trade response to the Kyoto Protocol where countries agreed to reduce carbon emissions in a fight against climate change. A cap is set on allowed levels of pollutant emissions with firms faced with a choice of either reducing pollution or if they pollute beyond the allowed levels, to purchase permits from firms who have successfully reduced pollution below permit. Since scheme’s introduction in 2005, carbon emissions have fallen and are 21% lower in 2020 compared to 2005.

49
Q

How has minimum pricing been used to correct market failures?

A

Alcohol in Scotland and Wales. June 2018, Scotland -minimum price of 50p per unit of alcohol to decrease alcohol consumption. Since introduction, alcohol consumption has been reduced by around 8% with the highest reduction of consumption amongst households that bought the most alcohol

50
Q

What are some evaluation points of using mininmum prices to correct market failure in regards to alcohol.

A

Low income househods haven’t changed their spending habits- regressive, and the policy has made no noticeable impact on reducing alcohol related crime.
It could be said that alcohol has a price inelastic demand
Retailers receive the extra revenue not the government
Could lead to increased shoplifting.

51
Q

How has the EU’s common agricultural policy had unintended consequences that have led to gov. failure?

A

Large sums of money are paid to farmers to leave land aside to avoid the problems of excess supply. This is a huge waste of resources representing a large cost of the policy as well as serious unintended consequences. Before the EU gov. proceeded with this action, huge amounts of excess butter, milk and other products were bought up and stockpiled or destroyed- another large gov. failure. The EU’s common fisheries policy is a quota system to deal with overfishing yet results in a major unintended consequence as dead fish are thrown back into the water due to fishermen exceeding their catch quota.

52
Q

How does state provision and healthcare cause unintended consequences?

A

Large wait times for A and E, non-essential surgeries and treatment being purposefully delayed. Primary school class sizes have become excessively large, given the excess demand issues of state provision.

53
Q

Give an example of an industry where law of diminishing marginal returns can be observed.

A
  • Coffee shops operate in the SR where land and capital are fixed. Theses stores face the law of diminishing marginal returns if they over employ staff during busy times
  • More baristas are confined by a lack of walking space and tables
  • Labour productivity, after a point, will fall with each worker hired, reducing marginal profits.
    Same for restaurants ect.
54
Q

Give 3 examples of where economies of scale can be observed.

A
  1. Airline industry; bulk buying fuel, and planes( purchasing economies), financial economies with loans, managerial economies and marketing economies all play a significant role in reducing unit costs.
  2. UK supermarkets; compete largely on the ability to achieve the greatest economies of scale especially technical, purchasing, managerial and financial economies of scale.
  3. 6 big energy companies in the UK are able to out compete their smaller rivals by building large barriers to entry in the form of huge economies of scale. Purchasing large quantities of energy well in advance of expected price rises.
55
Q

Give 4 examples of where diseconomies of scale have been experienced in companies.

A
  1. Failure of travel agent Thomas cook was partly blamed on ineffective control from management.
  2. Prior to 2010, PepsiCo’s growth strategy of acquiring smaller companies led to lack of coordination between departments, stifling innovation.
  3. Kraft and Heinz merger- employees complained about poor culture and lack of motivation
  4. Brewdog, suffered serious management issues and poor staff motivation through its rapid expansion with staff citing a culture of fear, toxic management and bullying.
56
Q

What are 2 industries that need to focus on profit maximising?

A
  1. Pharmaceutical companies have clear profit maximisation focus given their need to develop new drugs and the huge r+d costs it involves. Av. cost of R+D spending for each new drug from development to launch is approx $2bn.
  2. Major electronics companies, also due to the large R+D costs associated and desire to come up with new products with patent potential.
57
Q

Give an example of where profit satisficing was seen.

A
  • In 2018, Walmart reacted to Donald Trump’s large corporation tax cuts by paying their workers higher wages and offering employee bonuses of up to $1000; a good example of putting stakeholder satisfaction above profit maximisation in a modern business environment.
58
Q

Give an example of where revenue maximisation has been seen within a company.

A

Twitter- up until 2018 it wad focusing on satisfying shareholders with a revenue focused approach rather than a goal of profit max. It used its’s huge revenue numbers to justify business success to shareholders, citing that high revenues implied strong advertising demand on the site driven by a large active user base.

59
Q

Give 2 examples of examples where firms have focused on sales/growth maximising.

A
  1. Costa coffee in the UK has clear sales maximisation drive with the aim to get ahead of key rival Starbucks by opening more stores. The number of Costa stores in the UK is double that of Starbucks in the UK, suggesting that Costa is striving for brand recognition and brand loyalty.
  2. Netflix for the first decade of it’s operation had a focus of building a large user account base willingly offering deals to lure in first time customers. It has now moved towards a profit driven strategy by raising monthly fees more regularly. Spotify is a similar example.
60
Q

Give an example of a firm that prides itself on it’s corporate social responsibilities (CSRs)

A

Walt Disney Company pride themselves on the strength of their CSRs, focusing on labour standards, conservationism and charitable giving as well as promoting their own employees to give time towards volunteering.

61
Q

Give an example of perfect competition in a market.

A

Tuk tuks in countries like India and Thailand fit many of the characteristics of perfect competition. There are a huge number of buyers and sellers each selling homogenous services at the same price with perfect information. The only characteristic that it doesn’t fit is no barriers to entry as with Tuk Tuk driving, a licence to operate is needed as is the finance available to either buy a Tuk Tuk or rent one. This market also follows the theory of static efficiency being achieved but not dynamic efficiency over time.

62
Q

Give an example of a highly competitive market.

A

Airline travel- Specifically short haul flights.
They have seen a large number or carriers enter and exit the market with supernormal profits and subnormal profit acting as incentives for new firms to enter and struggling firms to exit. Established brands like easy jet and Ryanair have made a huge success of low cost, low priced, short haul travel, which has attracted new firms like Norse Atlantic into the market.
The end result has been very low fares and a high number of routes offered to consumers with large exploitation of economies of scale at minimal waster i.e. the achievement of static efficiency.

63
Q

Give an example of competitive markets within a loss making industry.

A

UK high street restaurant chains like Prezzo and Frankie and Benny’s are in a highly competitive market but have struggled immensely due to Covid lockdowns and the rise of takeaway delivery services like Deliveroo and Uber eats, who have made sit in dining a more luxury offering for consumers rather than a regular experience. This demand has led to a complete collapse of many of these brands or the closure of many restaurants nationwide.

64
Q

Give ana example of a firm with monopoly power.

A

Google search have a global market share of 90% in Sep 2024, a clear leader in the search engine market with significant monopoly power. Investigations by the European Competition Commission found search results to direct consumers specifically to google products or products of firms who advertise on google regardless of good value for the consumer.

65
Q

Give an example of a firm with natural monopoly power.

A

Water companies in the UK. They have very high fixed costs of building and maintaining pipe infrastructure as well as water treatment infrastructure, allowing them to benefit from large economies of scale. Given the essential nature of clean water, these companies are heavily regulated by Ofwat who use the RPI-K price regulation to ensure prices are affordable for consumers but also ensuring enough profit can be made by companies to re-invest in infrastructure maintenance.

66
Q

Give an example of a company that was found guilty of first degree price discrimination.

A

In 2005, amazon were found guilty of first degree price discrimination, charging different consumers different prices for identical goods and services, using cookies from consumers browsing on the site to gather information and changed prices accordingly.

67
Q

Give an example of companies that use third degree price discrimination (surge/dynamic pricing).

A

Train and airline companies are well known for raising prices of services during times of price inelastic demand and reducing prices when demand is price elastic. For train companies, this is the use of peak pricing during rush hour, commute times

economics (7 decks)

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