EVAL PACK

• What is the main objective of firms when they are founded?

  To make profit
• Why can't businesses survive without profit?

  Profit is essential for business sustainability
• How does retained profit benefit firms?

  It allows investment without loans
• What enables firms to fulfill objectives besides profit?

  Profit itself allows fulfillment of other objectives
• Why does Temu maximize revenue in the short term?

  To gain greater market share for long-term profits
• How do firms control supply to maximize profit?

  • OPEC controls oil supply
  • De Beers controls diamond supply
• What argument is made about firms being philanthropic?

  Philanthropy may increase revenue despite profit reduction
• How does Innocent smoothies demonstrate commitment to social goals?

  By donating 10% of profits to charity
• What percentage of China's market capitalization do state-owned enterprises account for?

  Over 60%
• Why do state-owned enterprises exist despite making profits?

  To provide essential services to the people
• What does Disney's stance on diversity hiring illustrate?

  Commitment to social causes despite backlash
• What is a minimum price on demerit goods?

  A legally imposed price floor
• How does a minimum price on alcohol help discourage consumption?

  It internalizes negative externalities associated with alcohol
• What did research by Sheffield University find about a 45p minimum price on alcohol?

  It would reduce consumption by 4.3%
• What are the potential benefits of increasing the minimum price on alcohol?

  It compounds benefits, being more effective
• Why is a minimum price on alcohol considered regressive?

  It disproportionately affects lower-income individuals
• What unintended consequences might arise from a minimum price on alcohol?

  People may turn to cheaper black market alternatives
• What is the estimated annual cost of alcohol to the NHS?

  £3.5 billion
• What role does alcohol play in violent crimes in England?

  It is involved in 40% of violent crimes
• Why might a minimum price fail to generate tax revenue?

  It does not collect tax from price increases
• How do producers benefit from a minimum price on alcohol?

  They benefit from higher prices without tax revenue
• What is the effect of a maximum price on merit goods?

  It prevents exploitation of consumers
• What is a maximum price?

  A legally imposed price ceiling
• How do maximum prices help consumers?

  They provide goods at lower prices
• What is a potential downside of maximum prices?

  They can lead to long-term supply-side issues
• How can maximum prices affect housing supply?

  They may discourage the building of new apartments
• What is policy myopia in relation to maximum prices?

  It fails to address root causes of high prices
• What is complete market failure?

  A missing market with no goods supplied
• What is partial market failure?

  A market that fails to allocate resources optimally
• What is a positive production externality?

  Benefits from production that affect others positively
• What is a negative production externality?

  Costs from production that affect others negatively
• What is a positive consumption externality?

  Benefits from consumption that affect others positively
• What is a negative consumption externality?

  Costs from consumption that affect others negatively
• What is the definition of efficiency in economics?

  Maximizing use of scarce resources
• What are the three main types of efficiency in economics?

  Productive, allocative, and dynamic efficiency
• What is productive efficiency?

  Producing at the lowest average cost
• What determines productive efficiency?

  Absence of competitive threat and economies of scale
• What is allocative efficiency?

  Producing where price equals marginal cost
• How can you identify dynamic efficiency from a diagram?

  Supernormal profit allows reinvestment in innovation
• What is consumer surplus?

  Cost saving benefit to customers