Microeconomics Flashcards
What is regulation? Give 3+ and -
Introducing rules or sanctions to modify economic behavior. Command and control. Regulators act as proxy consumers.
+Reduce monopsony power and protect consumers
Reduce use of demerit goods
Firms strive to reduce reduce costs and achieve productive efficiency
-Costly and time consuming to uphold
-Difficult to set and might not fully change behavior of consumers
-Black markets like alcohol and us prohibition and unhinged consequences eg firms leave a country
Give 3+ and - of deregulation
+In competitive markets, allocatively, x and dynamically efficient gains. Operate more flexibly.
+Can remove barriers to entry to make markets more competitive.
+Less red tape and bureaucracy (complexity of rules) so more resources are freed up to be used for investment = LRAS.
-Can lose a natural monopoly /eos (same for privatisation)
-Negative Externalities Without regulations to control pollution or ensure product safety, deregulation can lead to environmental damage, health problems, and accidents. (e.g., increased pollution due to deregulation of emissions standards)
-Reduced Consumer Protection Less regulation may allow businesses to engage in misleading advertising, sell unsafe products, or exploit consumers through unfair contracts.
Can’t fix other market failures eg consumer inertia, negative externalities etc
They’re there in the first place for a reason
Market Instability | With less regulation, firms may engage in risky behavior, leading to financial crises and economic downturns. (e.g., deregulation of the financial industry in the 2008 crisis) | issued sub prime mortgages to people with poor credit histories and these defaulted uk
Give 4+ and cons of price discrimination
+More revenue or supernormal to reinvest/ cross subsidise lower prices but supernormal reinvest to create barriers which is bad. +Might be equitable if some pay more (though may worsen inequality). Better than having tauts reselling for high price. Cheap last minute holidays to fill up capacity and reduce waste.
-Reduced consumer surplus
- Administrative costs to prevent seepage
-Regulation is good but regulatory capture.
-Deemed as unfair if some pay more and some groups have sub-groups within them eg low pay adults.
-Allocative inefficient
What is wage discrimination? Give 2 examples. 1 pro and con to the employer and employee (not labour market discrimination)
Part time workers or immigrants. Employers with monopsony power pay different wages based on different willingness to supply labor
+Workers may be in greater demand due to lower wages=more jobs
+Employers can save costs
-Exploit workers by forcing them to accept lower wages
-Admin costs such as paperwork
Give 3+ and cons of privatization
+Government revenue for selling firms such as royal mail. Use elsewhere (only one off though)
+Operate more x efficiently and have a profit incentive to reduce costs and prices, increase quality and improve allocative efficiency by satisfying needs and wants + (providing there is greater competition). Also, dynamic.
-Less loss making services made.
-May be too focused on short-term costs and profits. Reduces investment and jobs.
-May need deregulating to prevent private monopoly
-Could lose a profitable entity
Influences on supply of labour (don’t need all)
wage offered
o difficulty in obtaining qualifications and skills and number of qualified people
o non-wage benefits such as pensions, holidays, private health insurance
o job/vocational satisfaction/dissatisfaction and working conditions
o wages and benefits available in other similar industries
o the tax and benefits system
o demographic changes and immigration
o trade unions
o apprenticeships and training schemes
Give an example of first degree price discrimination
Car dealerships negotiating different prices for cars depending on whether consumers are seen as wealthy and willing to spend more or not
Discounts for price-sensitive
Give 2 evaluation points of kinked demand curve
-Some firms might lower to gain market share
-Some firms have established loyalty so the elastic curve wouldn’t be as applicable
-Doesn’t explain how the price was set initially.
Give 3 reasons for oligopoly competition
Give 3 reasons for collusion
Give an example of beneficial oligopoly
-Comp: One firm has cost advantage, lots of firms, homogenous goods
-Collude (overt- formal or tacit): Few firms, similar costs, ineffective comp policy
-Smartphones might be beneficial
-OPEC oil is collusive but openly a cartel
-Vitamin companies in 1990s illegal cartels.
Give eg of price war in oligopoly
Give 2 egs of third degree price discrimination
Low cost air travel
-Student discount vs adult
-Apple do it geographically (higher in America than Brazil)
Describe perfectly competitive labor market
No barriers to gain jobs
Perfect info on wages
Labor is homogenous/mobile
Supply and labour meet where ruling market wage is. Firms are wage takers
S=AC=MC= wage.
Operate on 2nd diagram where MC (perfectly elastic) is MRP (Demand)
Give 3 pros and 4 cons of re/nationalization
+More eos
Control necessary industries for macro control and control inflation/wages
Economic welfare (allocative efficiency) eg low prices high output
-Risk deos with large firms.
X Inefficiency. No supernormal profit motive and no dynamic efficiency
Burden on taxpayer as it’s costly
Moral hazard
Give 3 pros and cons of subsidies
Can change preferences
Internalize externalities
Help domestic industry grow and be competing
Difficult to put monetary value on externalities
X inefficient
Depends on ped
Opp cost
Burden on taxpayer?
Give 3 drawbacks of taxes
Ped. More for consumer? Incidence of tax
Tax disincentives/avoidance
Reduced competiveness and brain drain
Ringfence ?
Give eg of pes elastic and perfectly elastic
Elastic is clothing retailers
Perfectly elastic is apples or farming. Reduced price means no supply
Give eg of ped perfectly elastic and unit elastic
Perfect are farmers markets. Change in price means no demand
Unit is movies. Rose in price means fall in demand
Can taxes be beneficial in regards to x efficiency? Is inelastic good being taxed bad?
Yes but might lead to dangerous cost-cutting eg wages.
Yes because quantity falls slightly. Eg smokers often lower income so worsens inequality too No because larger revenue rise.
If sugar taxes were imposed on fizzy drinks (demerit) what is one evaluation point?
Producers might simply change recipes to avoid and use other harmful substitutes
Name a firm that was previously a natural monopoly prior to being regulated and opened up to new comp
BT
Evaluation to increasing training schemes
Evaluate this then evaluate that
Some people might not want to be trained/bounded rationality.Takes time.
Make training schemes mandatory
Invokes freedom
Other than education/training, how to reduce income inequality without using money? Name of female economist (Cl G)
Cultural norms eg more women beings managers of FTSE100 companies. Reduce glass ceilings. Claudia Goldin economist
Possible laws to counter discrimination such as the equality act 2010.
Labour market quotas. But could lead to people who are not qualified being placed in roles they’re not suited for
Evaluate changing welfare payments or taxes for short run. Name for short sighted
May not be as good in long run as political parties might change it (only has short run impacts)
myopia
Evaluate collusion for business survival
that collusion is essential to enable firms to survive. For example, there may be a bus industry which is struggling to survive. Without collusion one or two firms would go out of business. This would be bad for consumers because there would be less choice and less competition. Collusion may be necessary to keep the service going. Although prices may rise, this may be better in the long term because the service survives. However, there may be better ways to keep a bus industry in business. If necessary, the government could subsidise the industry. Collusion is not the best way to keep unprofitable firms in business.
Evaluate less public sector education investing with more private sector education
However, if there is less investment in education, it is not necessarily the case education standards would slip and labour productivity would fall. students learning online or in private colleges. However, if education did move into the private sector, it would likely cause an increase in inequality – with wealthy families more able to afford education. Lower public investment in education would probably affect the life chances of poor families the most. Also, there is a possibility that less spending on education does not necessarily cause lower standards. It is possible building expensive buildings and investment in new computers does little to affect education outcomes – the most important is the quality of the teaching not the buildings that students are in
