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Economics > Microeconomics Application > Flashcards

Microeconomics Application Flashcards

1
Q

What is an example of a leftwards demand shift?

A

i) The demand for Peloton bikes fell due to reports of dangerous design bikes and a return to office work.
ii) Demand for print newspapers has been on a downward trend due to cheaper substitutes online.

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2
Q

What is an example of a rightward shift in demand?

A
  • Demand for non-alcoholic drinks had risen due to health trends towards more healthy options
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3
Q

What are examples of rightward shifts in supply?

A

The temporary VAT cut in 2021 by 5% for the UK hospitality industry encouraged greater quantity and lower prices.

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4
Q

What is an example of a leftward shift in supply?

A

In 2019, the UK government ended subsidies for home solar panels, which increased costs of production and thus led to higher installation costs for consumers.

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5
Q

What are examples of rising prices of inelastic products, leading to increases in revenue?

A

i) Pharmaceutical firms, such as Pfizer, Nostrum, Flynn hiking up prices of essential medicines, shows profit motivated objectives.
ii) Oil, gas and electricity producers such as Shell and BP recorded record revenues and profits in 2023 due to soaring energy prices.

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6
Q

What are examples of price inelastic supply?

A

UK energy, UK housing

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7
Q

What was the impact of the rise in fuel duty in France in November 2018?

A

Mass protests due to its regressive nature and further dent into living standards. This forced the idea to be scrapped a few weeks later.

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8
Q

What does Hong Kong subsidise?

A

Influenza vaccinations for a variety of groups. Children under 12, adults over the age of 50, pregnant women and the disabled.
Arguments about equity, and positive externalities.

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9
Q

What is the minimum price implemented in Ivory Coast and Ghana?

A

It is for cocoa beans.
$1.62/kg
It does not involve intervention buying, but farmers are compensated with an income top up.

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10
Q

Which policy is widely imposed in Venezuela?

A

Maximum prices are used widely, especially on grocery goods, to improve affordability.
The impact has been to causes huge shortages, smuggling, black markets. Similar results have been seen in Cuba.

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11
Q

What is the annual cost of smoking for the NHS?

A

£2bn-£6bn

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12
Q

What is the annual cost of alcohol consumption for the UK economy?

A

£3.5 billion

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13
Q

What is the annual cost of obesity to the NHS?

A

£6.5 billion

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14
Q

What is the annual cost of gambling to society?

A

£1.2 billion

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15
Q

What are examples of goods which generate positive externalities?

A

Education, healthcare and vaccinations, public transport, school lunches, nuclear/ renewable energy.

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16
Q

What are examples of demerit goods?

A

Red meat, gambling, cigarettes, alcohol

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17
Q

What are examples of merit goods?

A

Sun cream, healthcare, education, home insulation

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18
Q

What are examples of pure public goods?

A

Flood defences, street lights, road signs, military defence.
Large scale flooding still occurs in the UK due to limits on government finances.

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19
Q

Which market failure can be evidenced by considering a Malaysian case study?

A

The Tragedy of the Commons. Forests in Malaysia are not privately owned. It had the fastest deforestation rate in the world, having lost approximately 15% of its forest coverage since 2000. Aggressive palm oil and timber industries.

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20
Q

What was the impact of the UK sugar tax?

A

Companies have reformulated their drinks to include less sugar. Consumption of sugar from fizzy drinks has reduced by 10%. However, in the fight against obesity, general consumption of sugar has increased since the tax was introduced.

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21
Q

What has received subsidies since 2001? (UK)

A

Museums, viewed to be a merit good, due to educated the public, wider horizons.
Museum visits increased by 184% since subsidies were introduced.

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22
Q

What regulation has been introduced in the UK to deal with the problem of plastic waste?

A

A variety of plastic items have been banned.
Plastic stirrers, cutlery, plates, cotton buds and plastic straws.

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23
Q

What are examples of anti-smoking regulation?

A
  • Age limits, must be 18 or over
  • Advertising bans
  • Public smoking bans
  • Compulsory warnings on packaging
  • Cigarettes sold behind closed counter
  • Compulsory plain cigarette packaging
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24
Q

What are problems that are associated with the state provision of healthcare (NHS)?

A

i) Funding costs the taxpayer between £150-£200 billion a year
ii) Large excess demand puts undue pressure on workers within the system
iii) X-inefficiency is a problem without a profit motive
iv) Normative judgements have to be made about which treatment to prioritise

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25
Q

What is the tradable pollution permits scheme in the EU?

A

The Emissions Trading Scheme (ETS). Carbon emissions in the EU were 21% lowers in 2020 than when it was introduced in 2005.

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26
Q

What has been the impact of Scotland’s 50p minimum price on alcohol?

A

It has reduced alcohol consumption by 8%. Alcohol related deaths were down by 13% the next year. There are concerns that the policy has not been impactful in reducing alcohol related crime. The data also suggests that low-income groups have not changed their consumption.

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27
Q

What did research show the impact of rent controls in San Francisco to be?

A

Research found that the number of rent providers decreased so substantially that city wide, rents on other accommodation increased by 5% to ration excess demand.

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28
Q

What is the value of the UK black market for cigarettes?

A

£2 billion a year

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29
Q

What is the value of the UK black market for alcohol?

A

£1.8 billion a year

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30
Q

What is the unintended impact of compulsory household recycling?

A

The UK has one of the highest recycling rates in the world (46%) but it is unable to handle the full scale of plastic waste for recycling. A large amount of waste is shipped to Asia where it sits in landfill or is incinerated.

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31
Q

What are unintended consequences of the UK’s state provision of healthcare and education?

A

Large wait times at A&E, long waiting list for surgeries, primary school classes becoming excessively large.

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32
Q

What is an example of a business that suffers the law of diminishing returns?

A

Pizza takeaway, coffee shops

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33
Q

What are economies of scale experienced in the airline industry?

A

Bulk buying fuel and planes (purchasing economies), financial economies with loans, managerial and marketing economies.

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34
Q

Name an industry other than airlines with high economies of scale.

A

UK supermarkets

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35
Q

What is an example of diseconomies of scale?

A

Prior to 2010, PepsiCo’s growth strategy of acquiring smaller companies led to a lack of coordination between departments, stifling innovation as a result.

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36
Q

Why is there such a strong incentive for pharmaceutical companies to profit maximise?

A

Companies need high profits to fund R&D to come out with a new product. The average cost of R&D spending for each new drug is approximately £2 billion. The new drug can be patented, giving the firm monopoly power, so it could be extremely lucrative.

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37
Q

What is an example of profit satisficing?

A

In 2018, Walmart reacted to Donald Trump’s large corporation tax cut by paying their workers higher wages, and offering employee bonuses of up to $1000, a good example of putting stakeholder satisfaction above profit max.

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38
Q

What is an example of predatory pricing?

A

In 1996, Rupert Murdoch was found to purposely reduce the price of The Times newspapers to only 10p on Mondays, deliberately selling at a loss to drive out competitors.

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39
Q

Which company focused on revenue maximisation until 2018, to justify business success to shareholders?

A

Twitter

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40
Q

What are examples of sales maximisation?

A

Netflix: For the first decade it focused on building a large user account base, by offering deals to lure first time consumers.
Amazon: For two decades, they barely broke even, as they focused on building the number of consumers.

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41
Q

What is an example of a market that is close to perfect competition?

A

The market for foreign exchange.
-Homogenous products
-Very good information
-Low barriers to entry, though licences are needed for firms to start up.

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42
Q

What is an example of the success of deregulation at promoting competitive outcomes?

A

Ever since deregulation in the 1990s, the market for airline travel has become intensely competitive. E.g. Easy Jet, Ryanair, Norwegian Airways…
Very low fares and a high number of routes offered to consumers. Large exploitation of economies of scale, definition of static efficiency.

43
Q

What is the market share of Google Search?

A

92%

44
Q

What percentage of US online sales went though Amazon?

A

38%

45
Q

What is an example of a natural monopoly in the UK?

A

Water industry, it has very high fixed costs and high potential for economies of scale. It is heavily regulated by OFWAT who uses RPI+k price regulation to ensure prices are affordable for consumers.

46
Q

What is an example of first degree price discrimination?

A

Amazon in 2005 was found guilty of first degree price discrimination, using cookies from consumer browsing to gather information and change prices accordingly.

47
Q

What is an example of third degree price discrimination?

A

Uber raises prices when demand on the app is very high.

48
Q

What is a good example of a monopolistically competitive market?

A

The clothing market in the UK. There are many sellers, and slightly differentiated goods, with low barriers to entry. Lots of non-price competition. There is strong dynamic efficiency (which goes against standard economic theory) because re-investment and innovation is part of the competitive nature of the industry.

49
Q

What is an example of an oligopoly that involves a lot of price competition?

A

The UK supermarket industry. Four firms control 70% of the market. Heavy price and non-price competition, e.g. low cost players such as Aldi and Lidl.

50
Q

What is an oligopoly that focuses on non-price competition?

A

Soft drink industry
(Coca-Cola and Pepsi)

Music streaming
(Spotify, Apple Music, Amazon Music)

51
Q

What is an example of overt collusion (oligopoly)?

A

OPEC which consists of major oil exporting countries. It is known for regularly altering the price of oil by raising or cutting output.

52
Q

What is an example of tacit collusion (oligopoly)?

A

The big six energy providers in the UK control 94% of the market and rarely engage in meaningful price competition. Price leadership is seen where one firm raises prices and the rest follow with something similar. Prices do not tend to fall unless OFGEM intervenes.

53
Q

What is an example of a contestable market?

A

Hotel market, shown by the success of Airbnb which was enabled by technological change.
Taxi market, success of Uber
Takeaway delivery: Deliveroo, Just Eat

54
Q

What was the impact of the Energy Price Cap on small retailers?

A

When wholesale gas prices went up sharply, the price cap did not reflect this, leading to widespread bankruptcy of small energy firms.

55
Q

How are rail fares regulated? (Peak rail tickets)

A

Peak rail tickets rise by RPI per year.

56
Q

Why was Advanz fined in 2021 by the CMA?

A

For monopoly abuse, increasing the price of thyroid drugs by 6000% over a ten year period.

57
Q

What is an example of performance targets for a monopoly firm?

A

Train companies and airlines have to limit the amount and length of consumer delays. One problem is that companies can ‘game the system’ by increasing the scheduled length of journeys to help them meet the target.

58
Q

What is an example of the CMA blocking a merger?

A

They blocked a proposed merger between Asda and Sainsbury’s in 2018, viewing it not to be in public interest.

59
Q

What is a potential example of regulatory capture?

A

Water leaks and raw sewage dumping in UK rivers and seas in due to poor infrastructure development from highly indebted private water companies, yet they pay generous dividends to their shareholders. Ofgem have been late to intervene and accused of turning a blind eye to these practices.

60
Q

What is an example of successful privatisation and deregulation?

A

The privatisation of Royal Mail in 2013. Prior to privatisation, Royal Mail was loss making and highly inefficient. Privatisation raised approximately £2 billion for government, and saw a turnaround in the fortunes of Royal Mail. They focused more on lucrative parcel delivery sector, with traditional letter market in large decline. Universal Postal Service is a regulated requirement to deliver to any address in the UK six days a week. Dividends paid to shareholders and strong re-investment back into company. Cost cutting measures have allowed the company to remain profitable. However, long strikes over pay and conditions in 2023.

61
Q

Explain an example where deregulation failed to deliver its objectives.

A

The UK bus market was deregulated in the 1980s with the abolition of firms needing to gain a license from the local council to operate a route. However, it proved to be ineffective because of a lack of regulation of incumbent firms. Their anti-competitive practices presented a barrier to entry, e.g. predatory pricing, heavy advertising. The overall market is an oligopoly dominated by five firms.

62
Q

What are problems with the current rail travel situation?

A

Fares have had to be capped by the ORR to prevent monopoly pricing, delays are common, investment has been limited- profits instead going to shareholders. Subsidies of up to £4 billion a year are going to train operating companies to keep them afloat.

63
Q

What percentage of UK schools are in the state sector?

A

93%

64
Q

What was overall trade union density in 2022?

A

22.3%, compared to more than 50% in the 1970s.

65
Q

What is public sector trade union density?

A

49% compared to 12% in the private sector.

66
Q

What is the National Living Wage?

A

£11.44
Since introduction, the headline minimum wage has increased by 40% above CPI, boosting pay for those on low incomes.

67
Q

What has been the impact of minimum wage rises on employment?

A

Despite significant rises in the minimum wage, evidence has shown no net impact on employment, though smaller businesses have been burdened by higher costs. However, many economists are worried about the impact of further rises on employment.

68
Q

What is the gender pay gap in the UK?

A

14.3% for all employees
7.7% for full time employees
The largest gender pay gap is for workers over 50 years of age, which is due to large educational and societal differences in the 1970s/80s.

69
Q

Which ethnic groups earn more or less than White British, comparing median hourly pay (2019)?

A

In comparison to white British:
- Chinese and Indian workers earned more.
- Pakistani and Bangladeshi employees had the lowest.

70
Q

What is the average salary for a Premier league footballer and for a teacher?

A

£4 million
£38,000

71
Q

What is the UK’s Gini coefficient compared to in 2008?

A

2008: 0.386
Now: 0.357

72
Q

What is an indicator of the progressive nature of UK taxation?

A

The top 1% of all earners contribute 30% of all total income tax revenue, an increase from 25% in 2010.

73
Q

What is an estimate for the PED of supply of housing?

A

+0.4

74
Q

Is PED of demand for housing elastic?

A

No, it is inelastic.

75
Q

What is an estimate for the XED for Coke with respect to Pepsi?

A

+0.7

76
Q

What is the hydrocarbon oils duty (fuel tax)?

A

52.95p per litre, then 20% VAT on top of this. Currently about 55% of the cost of fuel is tax.

77
Q

How much in subsidies was spent in the Inflation Reduction Act for addressing domestic energy security and climate change?

A

$783 billion. Independent analysis projects US greenhouse gases to fall to below 40% of 2005 levels.

78
Q

What was the impact of the minimum unit price for alcohol in Scotland?

A

Two and a half years after the policy was rolled out, alcohol related deaths were down 13%.

79
Q

What are examples of maximum prices?

A

Energy price cap in the UK. Rent controls in continental Europe.

80
Q

What is the UK energy cap set by Ofgem?

A

£1690, until 30 June.

81
Q

What is the London congestion charge?

A

£15

82
Q

What is the Singapore Electronic Road Pricing System?

A

An in vehicle unit must be installed to use the priced roads. The price varies from £0.50-£6 per trip, differentiated to consider congestion.

83
Q

What has happened to Cod stocks in the North Sea since 1970?

A

They have fallen by approximately 75%.

84
Q

What was the unintended consequence of the landfill tax introduced by the government in 1996?

A

It led to a large increase in fly-tipping, which can cost the taxpayer around £400 million a year.

85
Q

What was an impact of the 2007 Public Smoking Ban?

A

1200 fewer emergency admissions to hospitals for heart attacks in the following year.

86
Q

What was Brazil’s ‘Legal Land Programme’ launched in 2009?

A

It gave small plots of land to individual farmers. It is estimated that 2% more forest was left intact than otherwise.

87
Q

What percentage of rail fares are regulated in the UK?

A

40%

88
Q

What percentage of the world’s oil resources are in OPEC countries?

A

79.5%

89
Q

What was the value of the fine given to Apple by the EU (2024), over abusing their dominant position, by not informing consumers about cheaper music streaming outside the Apple ecosystem?

A

$1.8 billion

90
Q

The CMA blocked a £69 billion takeover of which company by Microsoft in 2023?

A

Activision Blizzard

91
Q

Who owns Thames Water?

A

A Kuwaiti investment fund and a Canadian pension fund. Efficiency has arguably worsened since privatisation in 1989, demonstrated by increased sewage into rivers.

92
Q

Which camera company was ‘creatively destroyed’ by digital cameras and then smartphones?

A

Kodak

93
Q

What did a 2001 Boston study show about framing?

A

When tax rebates were worded as ‘withheld income’, 25% of it was spent. When it was worded as ‘bonus income’, 87% was spent.
Framing can have a big impact: e.g. 90% success compared to 10% mortality.

94
Q

What does a 1991 study demonstrate about loss aversion?

A

Participants were given a coffee mug. Buyers were willing to pay on average $2.87 whereas sellers would accept on average $7.12.

95
Q

What pay rise did RMT workers secure in 2023?

A

5%

96
Q

What pay rise did teachers secure in 2023?

A

6.5%

97
Q

What pay rise did nurses secure in 2023?

A

5%

98
Q

Which two industries have the highest trade union density?

A

Education (47%) and Healthcare (38%). Both monopsonist employers.

99
Q

Which union reforms did Thatcher introduce?

A

i) Banned Closed Shops
ii) Introduced secret ballot
iii) Outlawed secondary picketing
iv) Outlawed foreign financial support

100
Q

What is the gender pay in the UK for all employees?

A

14.3%

101
Q

What have Iceland introduced to tackle the gender pay gap?

A

Companies with over 50 employees must have at least 40% of both genders on their boards.

102
Q

What must companies with over 250 employees do?

A

Publish their gender pay gap.

103
Q

What is the National Living Wage? (UK)

A

£11.44

Economics (6 decks)

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