AS Micro Economics Application

Barriers to Exit- high sunk costs in branded sportswear industry, e.g. Nike, Adidas

Benefits of Monopolies- spending on Research and Development, economies of scale.

Buffer Stocks- market for rubber in India is stabilised through the use of buffer stocks.

Bulk-purchasing economies of scale- supermarkets such as Tesco are able to buy in bulk; their considerable market power allows them to drive down the prices of inputs, such as milk and other farm produce, thus leading to lower unit costs.

Cartel- OPEC.

Congestion Charges- operate in London, Singapore and Oslo; according to Commission for Integrated Transport (CfIT), road congestion in the UK is set to grow by 65% by 2010 unless action is taken.

Demerit Goods-cigarettes, alcohol, drugs.

Diseconomies of Scale- communication problems; Virgin combated such problems by delayering – removing a layer of management.

Education-UK's spending on education amounts to 13% of the overall budget.

External Economies of Scale-growth of specialist suppliers and expertise in the computer industry in Silicon Valley, California.

Financial Economies of Scale-big firms have higher credit ratings than smaller firms – this means they can negotiate better loan rates with banks.

Global Externalities- ozone depletion, CO2 emissions, acid rain.

Government Failure- occasionally regulators can be too close to the industry they are monitoring – this is known as regulatory capture. This has arguably happened in the water industry, partly because the regulator in many cases relies on the industry to provide it with the date it needs for an overview of how the industry is operating.

Green Taxes- a landfill tax introduced in the UK in 1996 aimed at reducing the negative externalities resulting from excessive waste.
Healthcare- the UK's planned spending on healthcare for 2004 was £81 billion, 17% of the overall budget.

Income Distribution- income inequality has widened since Labour first came to power in 1997, despite some redistributive economic policies such as Working Families Tax Credit.

Indirect Taxes- taxes on cigarettes, VAT etc.

Kyoto Agreement- agreement aimed at cutting CO2 emissions by 5% less than 1990 levels, which set up international tradeable permits scheme; UK signed up; USA pulled out in 2001.

Marketing Economies of Scale- costs of advertising very high in soap powder industry; also high in branded sportswear.

Merit Goods-healthcare, education, public transport.

Monopolies- Tesco's bid for Safeway in 2003 was turned down because Tesco would have more than 25% of the market share, which would have made it a monopoly according to the Competition Commission.

Monopolies and Mergers- a merger that will lead to a company with over 25% market share is investigated by the Competition Commission to see whether it is in the public interest, e.g. the Manchester United plc and BskyB merger was prevented because it was not in the public interest.

Natural Monopolies- rail track, water supply.

Negative Externalities- noise pollution, litter, water pollution.

Positive Externalities- merit goods such as healthcare, education and public transport are seen as resulting in positive externalities.

Public Goods- street lighting, defence (UK planned defence spending in 2004 was £27 billion of 5.5% of overall budget).

Regulators- water industry (OFWAT), communications industries (television, telecommunications etc.) (OFCOM)

Restrictive Practices- two ice-cream suppliers, Wall's and Mars, were made to end the practice of forcing retailers to stock only their goods and not those of rivals.

Subsidies- the government subsidises the rail industry, even following privatisation.

Technical Economies of Scale- occur in many industries with indivisibilities (items that are not provided in small units), such as oil tankers and other capacity transport; the more they are used, the greater the level of efficiency.

Tradeable Permit Schemes- operate to manage fish stocks in New Zealand; also an element in the Kyoto agreement aimed at reducing CO2 emissions; Singapore has a system for reducing ozone-depleting substances.