Micro application Flashcards
4 fo 4 (19 cards)
1.3.2 Externalities
VAPING - consumption and production externalities
-Vapes can be considered demerit goods due to their potential for overconsumption and addiction, particularly among teens.
-Health Concerns:
Emerging evidence links vaping to respiratory issues and potential long-term harm. NHS may face future costs due to increased cases of lung conditions related to vaping.
-Youth Addiction:
Sharp increase in under-18s vaping—nearly 20% of UK teens aged 11–17 in 2023,
-Addiction to nicotine at a young age can impact brain development and lead to future smoking or substance abuse.
-Environmental Impact:
Disposable vapes create plastic and battery waste. Over 5 million disposable vapes are thrown away weekly in the UK, according to Material Focus (2023).
1.3.2 Externalities
Gym memberships - Positive consumption
-Over 10 million people in the UK held a gym membership in 2023, up from around 7 million in 2012.
-Public Health Improvements:
Improved fitness levels contribute to public health goals, such as reduced obesity rates. In 2021, 63.8% of adults in England were overweight or obese.
-Lower Healthcare Costs:
Healthier individuals are less likely to suffer from chronic illnesses like Type 2 diabetes or heart disease, reducing NHS expenditure and easing pressure on public services.
-Increased Workplace Productivity:
Regular exercise improves mental health and energy levels, benefiting employers through reduced absenteeism and increased efficiency.
1.4 Government intervention
Vaping
+EVAL
-Regulation
In 2024, the UK government announced a ban on disposable vapes to curb teenage usage, expected to be implemented in 2025.
-Taxation
The UK announced a new tax on vaping liquids starting October 2026. Pigouvian tax: internalises the negative externalities of vaping.
-“Swap to Stop” Scheme (2023–2024)
The UK launched a scheme to give 1 million free vape kits to adult smokers to help them quit smoking. Simultaneously, incentives for pregnant women to quit smoking using vapes.
EVAL
-Depends on PED for tax
-May create unintended consequences
-Black market activity due to ban
-SR vs LR
Internalising an externality
Internalising an externality refers to the process of incorporating the external costs or benefits of an economic activity into the decision-making process of the parties involved.
1.4 Government failure
Housing market
Policy Aim:
Make housing more affordable for low- and middle-income households.
Prevent exploitation by landlords in high-demand areas.
-Market Distortion:
Reduced supply of rental housing as landlords pull properties from the market or convert them to holiday lets (e.g. Airbnb). Lower quality of housing as landlords have less incentive to invest in property maintenance or upgrades due to capped income.
-Unintended consequences
3.1
Organic growth - Greggs
Product Innovation:
Launched vegan-friendly products (e.g., Vegan Sausage Roll in 2019), which drove massive media attention and boosted footfall.
Non-Price Competition:
Focused on branding, quality, and product differentiation (e.g., vegan products) rather than competing solely on price.
Store Expansion: economies of scale
Grew from around 1,500 outlets in 2010 to over 2,300 by 2023.
Focused on opening new stores in transport hubs (airports, train stations), which increased exposure to commuter traffic.
Investment in Technology:
Introduced a mobile app for click-and-collect orders and a loyalty program. Upgraded stores for better service efficiency and customer experience.
Revenue Growth:
Sales grew steadily—revenue rose from around £770 million in 2012 to over £1.5 billion in 2022, indicating successful organic growth.
3.1
Vertical integration
APPLE
+EVAL
Apple uses backward integration by designing its own chips (e.g., M1, M2 processors) rather than relying on Intel. It also owns key software platforms like iOS. It uses forward integration by selling directly through its own Apple Stores and online platform, bypassing third-party retailers.
Analysis:
-Increases efficiency and product quality control
-Reduces dependence on external suppliers
-Enhances brand strength and customer experience
-Allows tighter integration of hardware and software
Evaluation:
-High R&D and capital costs
-Risk of over-concentration and reduced flexibility
-May attract regulatory scrutiny for limiting competition (e.g., App Store policies)
3.1
Horizontal integration
Google and YouTube
-In 2006, Google acquired YouTube for $1.65 billion
-Eliminate Competition: Google Video was lagging; acquiring YouTube removed a major rival.
-Gain Market Share: YouTube had a large and rapidly growing user base.
-Revenue Expansion: Opportunity to monetise YouTube through Google Ads integration. YouTube’s total revenue—including both advertising and subscriptions—was around $43 billion in 2023.
Potential Benefits:
+Innovation: YouTube improved rapidly after the merger (HD video, livestreaming, monetisation for creators).
+Global Reach: Google’s infrastructure helped YouTube scale worldwide.
-Market Power: Google now dominates both search and video content; raises concerns about competition.
-Content Control: Concerns over censorship, algorithm bias, and data privacy.
-Regulatory Scrutiny: Increasing global pressure over Big Tech dominance and anti-competitive behaviour.
3.1
Conglomerate integration
Virgin
+EVAL
- Diversification of Risk:
By entering multiple unrelated markets, Virgin reduces its exposure to risk in any one sector. For example, a downturn in air travel may not affect Virgin Money or Virgin Media. - Brand Leverage:
Virgin uses its strong brand identity—associated with innovation and customer focus—to enter and compete in new markets, even where it lacks technical expertise initially.
+Cross subsidization
+Risk bearing economies of scale
-Diseconomies of scale
-Lack of expertise
3.4 Monopoly
Apple
-32% market share
-Made $184 billion SNP in 2024
-Smartphone industry has seen 30% deflation over the last 25 years due to DYNAMIC EFFICIENCY —> Innovated new products e.g. air pods, iPad, macbooks etc
-Strong brand loyalty which acts as a barrier to entry
-Faces competition from Samsung and Huawei
-Admitted that the software updates have been slowing down and killing the older models —> MONOPOLY ABUSE
-Have inelastic PED which means they can increase prices to increase revenues further
3.4
Monopolistic competition
-There are 46,000 hair and beauty businesses in the UK in 2021.
-Hairdressing contributes up to £6.5 billion to the UK economy per year.
-Hairdressers sell similar services. But the services may be differentiated e.g. depending on the quality of the haircut, the interior or comfort in the salon or upsells such as a particular shampoo or hair product.
-The UK hairdressing industry has a mix of independent stores, as well as chains such as Toni and Guy.
Should hairdressers need a licence to cut customers’ hair? The British Barbers Association states this would improve quality of service. This would also increase barriers to entry.
3.4
Natural monopoly
Thames water
-High Fixed Costs
Building water infrastructure (pipes, reservoirs, treatment plants) involves huge upfront capital costs. It’s inefficient to duplicate this infrastructure for competing firms.
-Economies of Scale
The average cost of production falls as output increases. Once infrastructure is in place, the marginal cost of supplying water to an extra household is very low.
According to Ofwat (2023):
-£160 billion has been invested in water infrastructure since privatisation.
-Average annual household water bill: £448 (2023/24).
-Firms are required to meet performance targets (e.g., leak reduction, environmental protection) set by Ofwat.
3.4
Oligopoly
-The five largest supermarkets in the UK have a five firm concentration ratio of 66%. However the industry has witnessed the growth of new entrants such as discount chains Aldi and Lidl.
-Some supermarkets were fined a sum of £50 million back in 2011 for fixing dairy prices.
-The CMA has been investigating loyalty schemes, such as Clubcard and Nectar. These schemes allow some customers to access discounts. The CMA suggests this could make it harder for consumers to compare prices between supermarkets and may investigate the fairness of a two-tier pricing system.
3.5
Monopsony
NHS
-NHS employs 90% of nurses
-First year pay for a junior doctor is £36000
-Sole Employer for Trainee Doctors: Real-terms pay cut of up to 30% over the past decade, alongside deteriorating working conditions such as unfavourable shift patterns and limited geographical choice
-Labour PES for NHS nurses in most regions is around 0.065- Very inelastic
-Between 2014 and 2016, there was a 20% increase in UK-trained doctors registering to work in Australia and New Zealand, indicating that better pay and working conditions abroad are attracting NHS staff
-In response to ongoing strikes and staffing challenges, the UK government agreed to a 22% pay rise over two years for junior doctors in 2024, costing approximately £1 billion.
-Some areas of the UK struggle to access GPs. For instance in Thurrock and Leicester there are over 3000 patients per GP, well above the national average.
3.6.1 - 3.6.2
CMA fines on firms
Pfizer & Flynn – £70 Million Fine
In 2022, pharmaceutical companies Pfizer and Flynn were fined a combined £70 million for overcharging the NHS for an epilepsy medication. After rebranding the drug to avoid price caps, they increased prices by up to 1,600%, costing the NHS millions annually.
CMA blocking mergers
When 3 mobile tried to buy O2, SMA were alerted because if they did merge they would have 31% market share, it was blocked to prevent formation of a natural monopoly
However, investigation doesn’t mean it gets blocked all the time
E.g. Orange and T-Mobile merged to form EE (combined to 33% market share). CMA found little evidence that the merger would negatively impact consumers
E.g. Merger between David Lloyd and virgin active was blocked because their combined turnover would be £1011 million
CMA price caps
-“Big Six” energy suppliers were overcharging customers on standard variable tariffs, leading to an estimated £1.4 billion in excess annual charges. This prompted the introduction of the Domestic Gas and Electricity (Tariff Cap) Act 2018, which empowered Ofgem to set a price cap on default energy tariffs.
3.4.5
Price discrimination
UBER
-Uber provides ride-hailing services and engages in “surge pricing”, adjusting prices based on demand.
-This often includes higher prices at peak times.
-There have been reports of a surge in Uber taxi prices during a rainstorm in New York that shut down the subway.
Scunthorpe steel
Nationalisation
-Was nationalised in April 2025
-Reported losses of £230 million in 2023 and £408 million in 2022
due to falling steel prices, dumping from China
-Were going to shutdown but gov intervened
