microeconomics

Cigarette tax and smoking rates

Cigarette tax and smoking rates

In the UK, smoking rates have fallen significantly in the past 40 years. A combination of factors have led to declining smoking rates. Higher tax Health campaigns warning about the dangers of smoking. Regulations to ban smoking in many public areas, making smoking less attractive. Changing social attitudes and decline in the fashionability of smoking. Campaigns and new products to offer help people to give up smoking. It is hard to separate the causes in why smoking rates have fallen. But the…

Running empty coach services

Running empty coach services

Readers Question: Why may it still make economic sense for the company to put on a coach for just one or two passengers, rather than turning them away? Recently I again had to travel to London by coach and discovered that it was a good idea to book early in case the coach was full! Was the coach company being more sensible now? If a bus has a capacity of 80 seats. It might need an average of say 30 customers per…

The battle for market share in UK supermarkets

The battle for market share in UK supermarkets

The UK grocery market has become increasingly competitive in the past few years. It is a good example of an oligopoly becoming more competitive. Certainly, the growing strength of discount giants like Aldi and Lidl have really shaken up the market and diluted the cosy oligopoly previous enjoyed by the likes of Tesco and Sainsbury. To further add interest, Pound shops are also gaining market share and nibbling away at the margins of the big supermarkets. For consumers, it is largely good news…

Reasons firms invest in very competitive markets

Reasons firms invest in very competitive markets

Readers Question: Why invest capita in purely competitive industries with equilibrium margins that are razor thin and entrants that erode quasi profits? Suppose volume is not exceptionally large, why then? Economic theory suggests that firms will invest in industries where there is supernormal profit being made. Investment will be more attractive in industries where there is a degree of monopoly power and higher profit margins. However, in the real world, firms can make decisions based on other factors and…