ALL econ application

What is the UK’s Gini coefficient?

0.33 approx

What is the UK national minimum wage?

£12.71 since 2026

What is the level of youth unemployment?

16%

What % of 16-24 yr olds are not in education, training or employment? What is this evidence of?

12%. Labour market failure.

What is the UK’s Gini coefficient without the welfare state and progressive taxation?

0.5

What does the UK’s Gini coefficient gap give evidence for?

Entire case study into redistribution policy

What is the Gini coefficient for wealth inequality in the UK?

0.59

How is the NHS a good example of market and government failure?

UK drug prices through the NHS are some of the highest in the world, despite monopsony buying power.

What are good case studies for oligopoly?

Energy and supermarket industries.

What is the Ofgem price cap for yearly energy prices? What is this a good example for?

£1,641 a year, regulatory price capping and unintended consequences.

Why is the Ofgem energy price cap a good example for unintended consequences debate?

Although it protects consumers it suppresses investment signals and deters supply.

What is the counter for the success of the NMW in fixing unemployment levels in the UK?

Although it reduces poverty, it raises youth unemployment

What is the current level of investment in the UK?

19%, among the lowest in the G7

What is the current UK inflation rate?

3.3%

What is the current UK unemployment rate?

4.9%

What is the current UK national debt?

£2,927.7 billion

What is the current UK national debt as a % of GDP?

~95% of GDP

What is the number of workers on zero hour contracts in the UK?

1.23 million (roughly 3% of all employed)

What are the advantages of a merger? (4)

Economies of scale (lowering average costs) (technical, managerial, purchasing etc), increased market share and power, efficiency gains, diversification reducing dependency.

What are the disadvantages of mergers? (5)

Diseconomies of scale (firm becoming too large leading to inefficient management, communication and higher average costs), cultural clashes and integration failures (reducing productivity), financial cost of merging, reduced competition in market (higher prices, less choice, lower quality), redundancies and unemployment from duplicated roles.

What are the types of mergers?

Horizontal integration, Vertical integration, conglomorate integration.

What is horizontal integration, and what is the aim? Give an example.

Mergers within the same industry/stage of production, aiming to increase market share, reduce competition and achieve economies of scale. Eg, 2024 Vodafone-Three merger.

What is vertical integration, and what is the aim? Give an example.

Mergers at differing stages of the same supply chain, aiming to control supply chain, reduce costs. Eg. 2018 Tesco-Booker merger (retail and wholesaler merger).

What is conglomerate integration, and what is the aim? Give an example.

Mergers of firms in different industries, aiming to diversify, reduce risks and share expertise. Eg, 2017 Amazon and Whole Foods merger.

What is the benefits of mergers on consumer surplus?

Benefit from economies of scale creating lower prices and improved quality, benefit from dynamic efficiency leading to better quality, innovation and lower prices.

What is the benefits of mergers on producer surplus?

Benefit from economies of scale lowering production costs and raising profit margins even with lower prices, benefit from dynamic efficiency from improved innovation and investment in R&D, benefit from horizontal mergers giving firms monopoly power to capture part of consumer surplus by charging higher prices.

What is the disadvantages of mergers on consumer surplus?

Reduced consumer surplus from horizontal mergers allowing firms to act like monopolies. Leading to higher prices and less choice. Lack of competition and large mergers lead to X-inefficiencies and higher costs being passed onto consumers in higher prices.

What is the disadvantages of mergers on producer surplus?

Large mergers and lack of competitive pressures allow for X-inefficiencies which erode profit margins,

What is the market structure for the UK Water industry? What aspect make it this?

Natural monopoly. High fixed costs for infrastructure, massive economies of scale, regional privatised monopolies, zero consumer choice.

What aspect on the C+R curve makes a natural monopoly? Draw it.

LRAC curve falls continuously due to high fixed costs over a large customer base.

What is the UK water monopoly firm and how big is it’s customer base?

Thames Water, supplying roughly 25% of population with a 15 million customer base.

What is the market concentration ratio in the regional water industry monopolies?

CR1 = 100%

What is the PED in the UK water industry? Why?

Extremely inelastic (near 0). No substitutes and water is an essential necessity.

What are the economies of scale in the UK water industry?

Technical, Network, Managerial.

Example of technical economy of scale within the UK water industry.

Larger treatments have a lower per-litre cost

Example of network economy of scale within the UK water industry.

Piping networks serve entire regions, so extending to new properties is a low marginal cost.

Example of managerial economy of scale within the UK water industry.

Specialist engineering and regulating teams.

What type of returns does the UK water industry use? And put simply, what does this mean?

ROSCO-style returns. Privatised rewards and socialised risks (investors enjoy very high profit margins and payouts whilst the firms are driven by debt-fueled ownership (where dividends are prioritised and debt is racked up whilst the public face higher bills and bailout costs) due to water’s essential nature)

What regulator regulates the amount of profits/returns allowed in the UK water industry? What is it?

Ofwat. ~4%

In regards to dividends and profitability, how much was Thames Water’s CEO paid in 2024?

£2.3 million

How much debt is Thames Water in? How much, and for what, was the fine it received in 2025?

£16bn in debt. £122 million fine in 2025 after investigation for sewage spills and undeserved shareholder dividend payouts.

Example of an externality in the UK water industry.

Sewer spillages, there were 592,000 spill events in 2024, which damaged much of the environment and ecosystem.

Examples of market failure in the UK water industry. (6 types)

Natural monopoly: the infrastructure cannot be economically duplicated. Regulatory failure: Companies allegedly prioritised £85bn dividends since privatisation rather than infrastructure investment. Negative externality: sewage spills and pollution that had insufficient penalties. Principal-Agent problem: Shareholder interests have taken priority over public duty. Moral hazard: ‘Too big to fail’, implicit government bailout guarantee.

Examples of government intervention in the UK water industry.

Regulating: Ofwat and their fines (eg). Price capping: Ofwat price controls for 5 year periods to incentivise productive efficiency and protect consumers. Promotion of contestability (Retail only): 2017 government deregulated the UK retail water industry, meaning non-household customers could switch water companies, and new firms could enter?

What is the market structure for the UK supermarket market?

‘Tight’ oligopoly (selling side) with monopsony powers over suppliers (buying side) - ‘Big 4’ plus discounters (Aldi + Lidl) have approx over 75% of market share. Intense non-priced competition.

What is the concentration ratio for the top 5 supermarket firms?

~75%

What are the ‘Big 4’ in the UK Supermarket industry?

Tesco, Sainsbury, Asda, Morrisons

What are the 2 discounters that shook the supermarket market? How fast did they grow in a decade?

Aldi and Lidl, growing from ~5% to ~18% combined market share in a decade

What are new entrants that are making the supermarket market more competitive?

Discounters, Ocado (online delivery) and rapid delivery of Getir.

What is the YED for supermarkets on average?

Low YED for groceries overall due to necessity goods, but higher YED for individual brands and rising due to discounters.

What are the economies of scale that supermarkets can gain?

Purchasing, Technical, Managerial.

Example of a purchasing economy of scale in the supermarket industry.

Massive buying power - Tesco buys £50bn+ stock annually and negotiates lower prices.

Example of a technical economy of scale in the supermarket industry.

Automated distribution centres and automated self-check outs.

Example of a managerial economy of scale in the supermarket industry.

Centralised buying teams, category management expertise when buying stock for trends of demand.

What are the average operating margins in the supermarket industry?

2-5%, with Tesco recently being £3.15bn

What is the profitability of discounters in the supermarket industry? Why is this a benefit (3 benefits)?

Lower margins but higher turnover. Higher net profit as can have a larger pool of profit (volume of sales increasing profit even though low margins). Extreme supplier monopsony power of bulk purchasing economy of scale. Lower holding costs because of high turnover requiring less storage space and less waste.

Examples of market failure in supermarket industry. (4 types)

Monopsony power: creating a supplier squeeze. Information failure: complex pricing (eg, multi-buying confusion, shrinkflation) and comparison difficulty. Negative externalities: food waste, plastic packaging and HFSS foods. Oligopoly pricing strategies: tacit collusion.

Types of government intervention in the supermarket industry. (2 types)

CMA competition regulator, food safety regulation and restrictions through taxes (Sugar Tax to combat childhood obesity).

Example of supply side shock to the supermarket industry. (1 obvious, 1 labour market and 1 niche)

Global conflicts (Ukraine 2022, Iran Strait of Hormuz 2026) raising oil and energy prices and creating fertiliser shortages. Rises in the NMW (£12.71 from 2026) acting as financial supply side shock. Extreme weather cases like the tomatoes from Spain and Morocco (58% of UK tomato imports) spiking prices 5x, shelf prices then went up 22% with some stores choosing to stay rigid in monopolistic purchasing power and left shelves empty.

Describe the efficiencies within the supermarket industry.

Intense competition drives productive efficiency, as the thin margins (~2-4%) force cost minimisation. Oligopoly may reduce allocative efficiency, if prices stay above competitive level, and food waste suggesting resource misallocation.

Examples of price discrimination in the supermarket industry.

Loyalty card pricing, members get lower prices whilst non-members pay full price.