micro application

Question 1

revenue maximisation (predatory pricing)

Answer 1

• in 2019, “big 4” accused of doing this with auditory to screen out competition
• cost them a combined 9m+

Question 2

negative externalities of consumption

Answer 2

• second hand smoke accumulated throughout life
• smoking attributed diseases cost US 300+b a year

Question 3

positive externalities of production

Answer 3

• uk public transport investment
• £1 on travel = £4 for economy
• people can access new jobs & businesses can access new customers

Question 4

positive externalities of consumption

Answer 4

uk education
- kids consuming it to a good standard results in 18% annual increase in GDP

Question 5

taxes on demerit goods

Answer 5

specific taxes (alcohol etc.) for inelastic goods that produce a negative externality
- fuel tax raises the gov 30b a year
- however…
placing these specific taxes gives incentive to get around them (gov loses 2.2b a year from tobacco smuggling into UK)

• sugar tax (2018):
  raises 240b a year for uk and has -30% sugar intake
• gov says money reinvested into schools (sports etc.)

Question 6

subsidies

Answer 6

good: uk solar panels and renewable energy
- stopped in 2018

bad?: eu agriculture subsidies
some argue this is a waste as farmers receive 30% of gdp but only contribute to 6%

Question 7

collusions

Answer 7

• apple (monopoly) using oligopolistic publishing market to collude and fix ebook prices apple fined 450m in 2014
• cma intervened to stop asda merging with sainsburys to further oligopoly power (they would have 28% market share)

Question 8

Economies of scale

Answer 8

• Incumbent airline companies can benefit from eos through large bulk buying of fuel and mechanical materials for planes (purchasing and technical eos)

Question 9

Market structures (Pfizer)

Answer 9

• pharmaceutical firms (Pfizer) may need to profit max to cover the millions $ cost of patents and sufficient r&d
• however they have come under scrutiny for abusing their positions and their supernormal profits since Covid; using the pandemic to further their monopoly

Question 10

Profit satisficing

Answer 10

Walmart used corporation tax cuts to profit satisfice, increasing wages and shareholder payouts instead of profit max

Question 11

Energy

Answer 11

Natural monopoly looking to expand further as of April 2025
Prices set to rise by 5% (inelastic demand)