Microeconomics - Application Flashcards
Example of technological advances decreasing the demand curve
Restaurant industry - introduction of apps like über eats, which is a substitute and move convenient
Example number 2 of technological advances decreasing demand
Print journalism - setting up of e-commerce is cheaper so firms can offer consumers lower prices c more convenient as can access on phones
Industry where coronavirus decreased demand in an industry
Forced countries to close borders, damaged plane industry
Example of covid increasing demand in an industry
Increase in online stores - Amazon, 200% increase in profits to $6.3 billion relative to previous quarter in 2020
Example of Covid increasing demand in fitness industry
Peloton increase as people can’t get to the gym - revenue increased by 172% to $607 million in 2020
Example of a price elastic demand industry
Furniture stores/motor vehicles - have many competitors so many options for alternatives
Example of a price inelastic demand industry
Electricity/water industries as natural monopolies so very low substitutes are available + goods are necessities
Closes example of a perfectly price elastic industry
Book stores - set up as e-commerce and real life stores, such large availability of substitutes - however argument convenience causes some consumers to pay morem
Example of a perfectly inelastic industry
Lifesaving goods - can be shown in America with exploitation
What is an example of a unitary price elastic industry?
Quantity changes in proportion to price - I.e clothing
Economic Factor decreasing the supply curve
2020 Uk trade deal with EU, still high tariffs for trade due to Brexit on imports and exports - UK supermarkets costs rise due to tariffs so either rise costs or decrease supply
Geographical factor decreasing the supply curve
Natural disasters effect the housing supply
Example of a factor that increases the supply curve
Innovation - early 200s digital revolution which increases efficiency
How can you show price elastic of supply?
Must be spare capacity - show on the horizontal line on the Keynesian LRAS curve
Example of a perfectly inelastic supply in a market
Housing in London’s Green Belt Policy - no more building on there to protect environment so supply is fixed
Example of ethical objectives benefiting a firm
Lush - refused to test on animals, gained positive reputation so increased market share
Example of a failed minimum price implementation
2020, British Gas raised its minimum price to increase profits, led to many consumers unable to afford which decreased profits - led to them reversing the policy to maintain market share
Firms objectives in Covid
Survival - reduced costs by making workers redundant
Example of a perfectly competition
Agriculture industry, in India employs around 120 million people, low barriers to entry as lots of farmland inherited, homogenous goods as climate similar everywhere so crops grown the same
Example of a monopolistic competition
Hair salons - goods similar but some differentiation, more competition is on non price factors I.e offering a free tea/coffee to increase loyalty etc. - also low barriers to entry + sunk costs as low skilled labour
Example of a contestable market
Coffee market - low sunk costs, low barriers to entry, 3 firm concentration ratio is 53%, lack of brand loyalty, Costa workers earn in average £11 an hour
Example of an oligopoly
Supermarkets - 4 firm concentration ratio (Tesco, Aldi, Asda and Sainsbury’s) - 66.1%, high barriers to entry (I.e high rent costs +expensive machinery) . Protection of market share by big firms - Tesco using ‘Land Banking’ which is buying land with no intention of building on it, to reduce competition
How do Tesco create external EoS?
Build leisure centres near stores to boost local economy, creates more demand in stores - shows protection of market share
Why can the supermarket industry be debated over whether a monopoly?
Tesco has 27.4% market share, under CMA rules classifies as a monopoly
Example of a duopoly market
Aerospace companies - Boeing and Airbus, own more than 90% combined market share - compete on profits + geography
Example of a monopoly
Google - 90.68% market share, only one product (search engine), firm is a price setter (google charge what they want for advertising), imperfect knowledge, no freedom of entry/exit
Example of government legislation barriers to entry
Financial Services Authority (FSA) - used to regulate financial institutions, firms had to be approved by them to start up but was expensive and time-consuming which deterred new entrants + protected existing firms
Example of Apple monopoly power
Owns AppStore, accuses of prioritising own apps (IMovie, Garage Band) over third-party apps to increase its profits over third-party developers, example of monopoly power
Example of Amazon barriers to entry
Amazon prioritising it’s own goods (Amazon Basics) on website to avoid selling commission to third-party firms, third-parties can’t compete as lack of alternative places to sell
Example of patent barriers to entry
Intellectual Property Rights (IPR) - used by pharmaceutical companies to maintain monopoly powers, however USMCA increased regulation making it harder to impose patents)
Example of climate change barriers to entry
Tesla - grew to multi billion firm where Ford lost sales in 2019 due to consumers more environmentally aware, Norway first country with more electric cars than petrol, example of technological advances + higher barriers to entry in industry as electric cars have higher start up costs + more regulation
Example of technological advancements increasing contestability
Gaming market - Nintendo Switch benefiting from technical economies of scale to compete with PS and Xbox, but Xbox and ps accused of predatory pricing
Level of UK unemployment in 2024
3.8%
Level of unemployment in Covid
2020 - 5.2%
Level of unemployment in Great Depression
14.7%
Example of reduced discrimination
Equal Pays Act 1970 - no sexual discrimination
Example of government control of trade unions
Margaret Thatchers- against trade unions as believed created real-wage unemployment and cost push inflation . In 1979 inflation was at 27%, led to Thatcher passing acts to reduce their power
Friedman’s argument against trade unions
Argument they created discrimination as employers wouldn’t hire people they didn’t think could justify the higher wage
Examples of monopsony power in the product market
NHS over pharmaceutical companies - can be shown as higher prices in US due to private market so more competition
Example of supermarket monopsony power in the product market
Big 4 have 66.1% market share, can negotiate lower prices for domestic goods from fsrmers
Example of worker exploitation backfiring
PLT- Black Friday sale charged low prices but was discovered could do this as paying workers less overseas, lost 40% in sales
Example of Covid-19 worsening distribution of wealth
Hurt tourism industry, increased poverty levels in these countries, also in UK students forced to learn from home so worse equipment worse education level, so less opportunity for higher laying jobs
Example of Covid worsening regional distribution of wealth
North/south divide - London, lots of service industry, could work from home - North, lost of manufacturing sector, made redundant as can’t work from home leading to structural unemployment which worsens inequality
CMA role
Investigate large scale mergers and Oversees Regulators for other industries - OFGEM(electricity), OFWAT(water), OFSTED(education), OFCOM(telecommunications)
Example of OFGEM intervention
BT used to own majority of fibre optics which lead to monopoly power, OFGEM made BT open up cable network to promote competition - consumers price fell massively
Example of CMA regulation
2018, blocked Asda and Sainsbury’s merger as argument not beneficial to market
Example of ‘ex ante’ regulation
Government intervention before market abuse - DMU for Google and Facebook
Example of regulatory capture
2016 Energy firms stopped announcing profits so could exploit more as larger information gap - OFGEM sided with them
Airline Deregulation Act 1970 benefits
Triggered rise of low cost airlines, existing airlines were forced to lower prices, improved economic welfare
Example of deregulation in UK industry
Privatised postal service,new entrants (Hermes and Wish), greater economic welfare
Example of benficial privatisation in an industry
Water industry - privatisation saw an improvement of £160 billion to improve water quality and reduce pollution - positive externality
Example of failed privatisation in an industry
Probation industry Privatised in 2014, failed as bailed out by government a lot, renationalised in 2021
Example of government failure
Emissions trading schemes - creation of market where firms could buy/sell trade pollution permits - due to 2008 financial crisis firms no longer needed to produce as mush so price of permits fell massively- lack of incentives form firms to find alternatives so increased pollution
Example of price discrimination
WHSmiths charge higher in hospital outlets than normal stores
What is an example of a negative externality consumption good?
Smoking cigarettes / drinking alcohol
Costs of smoking cigarettes
£2bn-£6bn cost to NHS, £14bn cost to UK taxpayer
Costs of alcohol consumption
£3.5bn cost to NHS, £52bn cost to total UK economy
Example of a negative production externality
Firms produce air pollution - £42.88 m annual health and social care costs, 2x more likely to die of air pollution in the UK than USA
Example of a positive consumption externality
Exercise
Positive savings of fitness
NHS savings of £100 per year,employer greater productivity - greater social wellbeing
Positive impact of trade unions
Trade unionist workers earn 5% more than non-unionist workers doing the same job
Growth of minimum wage since 1999?
Grown 40% above CPI, boosting pay £2.70 an hour for workers had it not been introduced
Criticism in national wage?
Fails to account for different cost of living - in London has little impact due to high cost of living, in Wales lower cost of living so overburdens businesses with higher labour costs
Reasons for wage differentials
Labour isn’t homogenous, non-monetary considerations (holiday), labour isn’t perfectly mobile, strength of trade unions + monopsonies
Reasons for men/women wage differentials
Women in and out of labour more if have children losing skills/experience (shown as women with no kids earn more), age economically inactive is crucial (around 30), education/training (only in LICs), women work more part-time, discrimination
Reasons footballers receive high wages
MRP is very inelastic - shirt revenue/TV, low and inelastic supply of footballers due to high levels of training, lack of homogenous footballers
Reasons teachers receive lower wages
Vocational element to teaching, monopsonist state employs teachers, reduced bargaining power of teachers
Negative multiplier effect on north-south divide
Industries in north in more decline due to shift of Uk economy away from manufacturing sector- cause structural unemployment which creates less spending in regional economies damaging other industries , causes unemployment increase in region as labour is derived demand
Gambling negative consumption externality effects
£1.2 billion cost to society, metal health issues etc
Elasticity of ecigs
Between -0.3 and -0.6 - taxes ineffective on consumption
Examples of sugar/obesity negative consumption externality
25% of UK adults obese, £16bn cost to NHS annually, Mexico sugar tax cut sales by 12% in 1 year
Methods to reduce market failure in housing
Deregulation, subsidies to builders, max price on rent
Policies to encourage consumption of positive externality goods
Max price, subsidies, information gaps filled
Market failure with NHS/Education
£110 Billion spent a year on NHS, £80 billion spent on education - perfectly inelastic supply, leads to excess demand
