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Micro Context Flashcards

1
Q

Example of firm being X inefficient

A

De Beers Diamond monopoly for much of 20th century, nationalised utilities not facing competition

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2
Q

Example of firm being productively inefficient

A

Manchester United- Jim Ratcliffe has to undergo cuts, 250 redundancies and restructuring as they had lost £300 million in last 3 years; employed a body- language consultant earning £175,000 a year, Government- subsidised agriculture firms, Ford before 2000s

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3
Q

Example of firm being allocative inefficient.

A

Pharmaceutical company, De Beers, Apple, AT+T used to operate as a monopoly in telecommunications in the USA

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4
Q

Example of third degree price discrimination

A

Taxis and rail- timing between peak and non- peak hours, Student discounts, Cinemas: students/ adults/ seniors (?), Night- clubs: early- entry ticket (?), Means-tested student tuition fees (different for different incomes)

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5
Q

Example of collusion in Oligopoly

A

CMA found collusion over 19 contracts, trying to inflate prices by submitting cover-bids (bid-rigging), in construction industry between 2013-2018 (regional oligopoly). Firms fined nearly £60 million. Virgin Atlantic and British Airways colluded on fuel surcharges- £121.5 million fine on BA; Virgin avoided fines due to whistleblower status

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6
Q

Example of price leadership in an Oligopoly

A

Delta airlines in US airline industry (tacit collusion)- American Airlines and United airlines followed suit on a fare increase in 2028 across domestic routes. BT dominant in broadband pricing in UK over TalkTalk and Sky. Tesco in supermarket industry (but more competitive)

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7
Q

Example of a price war and a competitive oligopoly

A

Supermarket industry due to competition from Lidl and Aldi- leading to Tesco doing ‘Aldi price match’ campaign etc. Budget airlines Ryanair had dropped prices as low as £5-10 on routes to attract volume (over EasyJet for instance)

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8
Q

Examples of non price- competition used in an oligopoly

A

Loyalty schemes- Nectar card, Tesco clubcard (which has over 16.3 million users), Perks such as with 02 priority- exclusive access to concert tickets, branding and sponsorships (Coke sponsoring Olympics and Pepsi using advertisements with Messi), After sales care: Curry’s tech support and free recycling, Vauxhall Care- car warranties

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9
Q

Example of a monopoly being dynamically efficient

A

Dyson invested £9 million a week in Research and Development in 2023, historically pioneered bagless vacuum cleaners, digital motors and baseless fans. Ocado has developed robotic warehouse systems and AI driven logistics software. Tesla hasn’t always made a profit but is a frontrunner in investing in EV technology.

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10
Q

Example of a monopoly not being dynamically efficient.

A

British Rail pre privatisation.
De Beers had little incentive in investing in technological advances to lower costs and improve consumer choice. Thames losing 600 million litres of water per day, no investment in smart/AI leak detection sensors like Yorkshire water. In 2023 CEO Bentley was payed £1.5 million in a compensation package. 2023-2024 first half- 54% drop pre-tax profits despite revenue increasing 12%.

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11
Q

Examples of monopolies exploiting consumers with ridiculously high prices

A

In 2015, Turing pharmaceuticals raised the price of Daraprim, a life saving Parasitic drug, from $13.50 to $750 overnight, (over) a 5000% increase. De Beers artificially restricted supply to keep prices high and promoted the myth of diamond scarcity through ‘A diamond is forever’. Uk water companies- regional monopolies as households cannot choose their water supplier.

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12
Q

Examples of where markets have been subject to ‘hit and run’ tactics

A

Jet 2 and Flybe temporarily entered busy routes in peak season charging lower fares; then withdrew once Ryanair and EasyJet matched them. Kapten and Bolt made aggressive short-term entries in London and Manchester offering heavy discounts. Kapten left UK entirely in 2021. During lockdown, Big Eats and Goodeats entered during the pandemic offering lower commission fees to restaurants(but failed to scale)

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13
Q

Examples of contestable markets pushing down prices

A

Ryanair offering budget flights as low as £1 pushes incumbents to cut fairs and introduce similar budget offerings- British Airways’ BA CityFlyer, Entry of online-only banks like Monzo/ Revolut led traditional banks to cut fees on overdrafts, international transfers and ATM withdrawals, Aldi and Lidl leading to price- matches, Pre-2021, the entry of Bulb and Octopus energy who had lower overhead costs pushed prices down for energy

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14
Q

Examples of differentiated goods in monopolistic competition

A

Restaurants and cafes- different menu items, clothings stores- different styles (fast-fashion), coffee shops- atmosphere, additional services like WiFi, Bottled water- branding

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15
Q

Give examples of Creative destruction

A

Nokia forced to sell its business to Microsoft in 2014, having been replaced by IPhones, Samsungs and other Android phones.
Blockbuster (DVD company) being replaced by Netflix.
Amazon disrupted traditional department stores like Sears and Toys R Us.

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16
Q

Example of a natural monopoly being wasteful

A

Thames Water underinvest in infrastructure- leak 600 million litres of water a day, don’t have smart/AI lead detection technologies. Paid over £150 million to its parent company in dividends in 2024 whilst being in £19 billion of debt- fined by Ofwat. Has been fined for waste and environmental exploitation.

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17
Q

Example of framing policies

A

‘Global warming’ seems more drastic than ‘climate change’.
‘Clubcard prices’- makes discounts seem exclusive and like more valuable savings
‘Freshly prepared in-store’ vs ‘pre-packaged’
‘Essential range’- budget lines are labelled to imply practicality rather than financial constraint in Waitrose
‘25% fat free’ sounds better than ‘75% fat’

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18
Q

Example of nudging policies

A

Place healthier food at front of store and at eye level; Social norm messaging on bills ‘more energy than their neighbours’; calorie labels on menus, smaller plate sizes in buffets

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19
Q

Examples of where loss- aversion can be exploited

A

Scarcity messaging+ limited time offers e.g. Amazon: only 3 left in stock- triggers fear of losing out on deal
Free trials with automatic renewal e.g. Spotify/ Netflix : cancelling fees feels like a loss of something already gained
Pension auto- enrolment- opting out feels like losing future security

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20
Q

Example of second degree price discrimination

A

Bulk- buying water cheaper than a single unit
Cinema: front-row seats vs middle vs back vs VIP
E-book, hardcover or paperback

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21
Q

Examples of indirect taxes

A

VAT (20%); Fuel duty- tax on petrol/ diesel; Alcohol duty, Tobacco duty (cigarettes); Air passenger duty (long haul economy £87); Sugar tax; plastic packaging tax (less than 30% recycled plastic)

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22
Q

Examples of Government policies used to correct negative externalities

A

Carbon pricing & emissions trading scheme (UK ETS)- companies must buy permits to emit CO2 ;10p charge for single- use plastic bags; Tobacco duty/ sugar tax, ULEZ

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23
Q

Examples of government failure

A

Housing planning restrictions- Green belt has artificially restricted supply of housing pushing up house/rent prices.
2019 Energy Price Cap by Ofgem has discouraged new entrants and innovation- small suppliers went bust in 21/22.
Fuel duty frozen every year since 2011- estimated lost £80bn in revenue/ limit incentive to switch/fund greener transport

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24
Q

Examples of Common Access Resources

A

Sea, air, forests

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25
Example of information failure
Healthcare- not understand full effects of diet/ lack of exercise/ smoking etc. Consumers stay on ‘standard variable’ energy tariffs, lacking awareness of how to switch. Students may not realise true value of private education/ courses (overpay or under consume)
26
Example of asymmetrical information
‘Market for lemons’ where the seller of a second-hand car has way more information than the buyer- meaning good quality cars may be driven out the market due to a lack of trust, or consumers may get exploited. Health insurance- customers know more than the insurance company- higher insurance costs Labour market- job applicant knows more about their skills than recruiter- hire less suitable candidates Lenders have less knowledge of if a borrower will repay- lead to higher IR/ less credit availability, specially for low-income or young households
27
Example of a missing market
Street lighting or national defence
28
Example of partial- market failure
Private healthcare- inequitable/ not everyone can afford necessary treatment High tuition fees- underconsumption over affordability concerns Green energy market Private childcare services- too expensive- may lead women to have to leave the workforce
29
Example of a public good
Flood defences, roads, bridges, beaches, national parks, road signs, street lights, defence, traffic lights
30
Example of a quasi- public good
Motorways- M6 toll road/ congested roads become rival in peak hours (M25) Some public parks- Kew Gardens (charges entry)
31
Example of a merit good
Education, healthcare, vaccines, public libraries, public transport, nutritional programmes
32
Example of a demerit good
Vapes, cigarettes, alcohol, recreational drugs, junk foods, pornography, sugary drinks
33
Examples of the NMW not leading to higher unemployment in certain economies
UK, USA (California, New York etc.), Germany, Australia, New Zealand
34
Examples of strong trade unions
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35
Examples of weak trade unions
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36
Examples of a monopsony labour market exploiting labour
NHS, State schools, Walmart, McDonald’s
37
Examples of economies with no NMW and that effectiveness
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38
Examples of economies with low NMW and that effectiveness
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39
Examples of rules of thumb
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40
Examples of price anchoring
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41
Example of bounded self control
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42
Example of Gov using default choice
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43
Example of Gov using mandated choice
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Example of Gov using restricted choice
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45
Examples of goods/ services in joint demand
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46
Examples of goods/ services in competitive demand
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47
Examples of goods/ services in composite demand
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48
Examples of goods/ services in derived demand
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49
Examples of goods/ services in joint supply
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50
Example of Gov using Minimum price/ price floor and its effectiveness
Alcohol in Scotland (50p tax per unit of alcohol)
51
Example of Gov using Max price/ price ceiling and its effectiveness
Rent control (Berlin, New York), Energy price cap, Food in Venezuela
52
Real- world examples of external economies of scale
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53
Real- world examples of internal economies of scale
Energy, Supermarkets, Airlines, Tech firms, Online retailers
54
Real- world examples of the Principle Agent Problem
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55
Examples of ‘cartels’
OPEC- controlled/ dictate the market for oil (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela founding members)
56
Examples of regulatory capture
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57
Example of market with high sunk costs
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58
Examples of labour market discrimination
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59
Real- world examples of wage discrimination
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60
Example of economy with high Gini coefficient
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61
Example of economy with low Gini coefficient
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62
Example of the free- rider problem
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63
Examples of tradable pollution permits being used and its effectiveness
Kyoto protocol, ETS (EU)
64
Examples of UK competition policy
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65
Example of EU competition policy
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66
Example of a privatised firm being efficient
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67
Example of a privatised firm being inefficient
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68
Example of a nationalised firm being efficient
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Example of a nationalised firm being inefficient
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70
Examples of policies used to alleviate poverty
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71
Example of good/ service with elastic PED
Luxury goods (designer handbags, sports cars etc); Restaurant meals (many alternatives- eat at home, takeaway etc.); airline tickets (apps like skycanner make it easy for consumers to compare prices and change destinations); streaming services (easy to switch/ cancel)
72
Example of good/ service with inelastic PED
Cigarettes, alcohol, sugary drinks, fast food, public transport, iPhone, basic commodities
73
Example of good/ service with elastic PES
Fast fashion retailers (Zara/ H+M) Digital goods/ services (E books, downloadable software, online courses) as they can be distributed at a very low MC. Uber/ Bolt- Supply can increase quickly as more drivers log in when fares surge Bottled water/ canned food (produced and stocked in bulk quickly whilst prices rise)
74
Example of good/ service with inelastic PES
Basic commodities, Gas/ electricity, Housing, Heathrow/ Gatwick airport
75
Examples of XED complements
Nespresso machines+ capsules, printers+ ink, game consoles+ video games
76
Examples of XED substitutes
Fast food burgers, smartphones
77
Examples of YED normal goods
Restaurants, foreign holidays, designer clothing, theatre, home renovation
78
Examples of YED inferior goods
Fast food, public transport, staycations, own brand food
79
Examples of policies used to redistribute income
Tax rich more (Australia) Increase transfer payments Increase G on education and health Increase NMW- £11.44 to £12.21 Northern powerhouse
80
Example of monopoly regulation
Examples of RPI price capping: trains, Gatwick landing charges Examples of RPI-X: Heathrow landing charges RPI+K: Water companies Quality control: rail providers and airlines (certain amount of delayed allowed per days before needing to pay compensation) Internet providers- have to provide a certain internet speed Energy- not allowed to take away energy for the poor even if they can’t pay Merger being prevented by CMA- Asda and Sainsbury’s
81
Examples of loss making companies
BlackBerry, Monarch, Toys R Us, New Look, Maplin, Restaurants
82
Examples of firms with profit- max objectives
Pharmaceuticals, Electronics
83
Firms with Monopoly power
Google search, Durex, Gazprom, Merlin attractions, Stagecoach Cambridge, London Underground, UPS, Tesco, Motorway Fuel providers
84
Example of 1st degree price discrimination
Amazon
85
Firms doing Corporate social responsibility
Microsoft w/ Bill Gates Foundation, Disney, Starbucks (source coffee beans more equitably), Body Shop- don’t test their products on animals
86
Examples of Natural Monopoly
Rail infrastructure (network rail), post, utilities
87
Examples of subsidies
Electric cars, solar panels, transport, R+D, In work training, Adult training
88
Examples of bans
Smoking bans, bans on smoking advertising, in France, bans on refills of soft drinks, proposed bans of plastic straws
89
Limits
Age limits- Cigarettes, Alcohol
90
Compulsory regulations
Forced negative advertising- e.g. on Cigarette packets, forced calorie content on menus (US), forced nutrition information- traffic light system, Italy proposing forced vaccinations against the Flu and measles
91
Quotas
Fishing quotas, caps on CO2 emissions
92
What is the Beijing Roadspace Rationing Policy?
On July 20, 2008, Beijing implemented a temporary odd- even rationing policy- cars with only even last numbers allowed to drive one day, cars with odd last number drive the next day. A 40% daily reduction of vehicle emissions was completed, lowering mean surface temperature by 1.5-2.4 degrees. After Olympics, cars shall cease to go inside the 5th Ring Road for one day per week, linked with end number on number plate.
93
Negative externality in production
Manufacturing, driving cars leading to: resource depletion, resource degradation, loss of biodiversity, desertification
94
Negative externality in consumption
Cigarettes, alcohol, sugary drinks, fat, chewing gum, sun beds
95
Positive externality in consumption
Vaccinations, Healthcare, Education, Public transport, Exercise, School lunches
96
Positive externality in production
In- work training, R+D, Childcare
97
Examples of policies to correct positive externalities
NHS, free state education, free prescriptions for certain groups, subsidies for EVs
98
Give reasons why the NMW has not increased unemployment
Gradual phasing in, incremental increases and use of the Low Pay Commision (independent body) to recommend the level); productivity gains (opportunity cost of losing a job becomes greater), boost to low-households incomes with the highest MPC, boosting C then AD, existence of monopsony employers, some jobs like social care and healthcare are wage inelastic as can’t be substituted by capital, strong economy- absorb it through slightly smaller profits/ higher prices
99
What is the effect of a NMW on developing economies?
Brazil- beneffitted- no major impact on employment due to strong economic growth; improved enforcement meant employment stayed in formal sector But in Indonesia regional minimum wages have reduced formal employment among young and low skilled workers, leading a shift from the formal economy into a growing informal economy. In Kenya, mixed impact: enforcement weak in informal sector and rural areas, leading to minimal impact on employment due to widespread non- compliance. Risk of discouraging formalisation among smaller firms.

Econ Flashcards (4 decks)

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