PAPER 4B

1. The term consumer choice is a micro-economics theory relating to personal preferences,

consumption and demand. The consumer is exposed to any number of choices, where they
can buy without compromising on their budget or preference.
2. Market failure relates to inequality in the economy, when there is a divide in wealth, living
standards. It could also occur when there is a price hike, making goods or services out of
reach for people. Also lack of price controls caused by monopolies could also lead to market
failure.
3. Consumer sovereignty means that in a free market it is the consumer which dictates what is
produced, and it is the producers who respond to the demands and preferences of the
customer. If the business wishes to stay in business or not lose profit they will respond to
the customer demands and wishes, as it is the consumer who determines demand of certain
products over others.
4. The role of Competition Commission in protecting the customer is that is conducts
investigation into mergers, acquisitions, and regulates industries, to ensure that there is
competition within the market to the benefit of the consumer, and the economy, and that
pricing for example is fair. It also has the power to direct companies to direct companies to
take action which improves competition. It can also restrict monopolies, if it threatens
healthy competitive market.
5. Tesco’s power may be seen as market failure because Tesco has 31% share of the market,
which is almost a third, thus wielding tremendous power compared to the competition
which is lagging behind. This means that no other retailer is able to compete effectively.
Market failure can result because it can stifle consumer choice, force independent retailers
out of business. It can bully suppliers, and set up price controls due to its dominant almost
monopolistic position.
6. The effects of Tesco’s market share on consumers is that it can decrease and stifles
consumer choice by driving out local business. It can also have a negative impact on the local
community by destroying town centres and taking away business. Tesco tend to build in out
of town areas, hence access to such places may not always be possible. However there are
positives to this also, Tesco has introduced 8,000 new lines from 300 new suppliers, helping
the local businesses, and from Tesco’s perspective giving the consumer a diverse range of
products to choose from. Tesco business model concentrates on giving customer value, and
the customers have been attracted to Tesco as a result of competitive pricing, product value,
and convenience.

Tesco’s effect on suppliers is that there have been cases where it has been highlighted that
Tesco due to its dominant position bullies suppliers. It has been accused of paying for goods
from suppliers where the suppliers are working on very tight margins of profit, hence why
Tesco is able to offer competitive pricing. There are also cases where Tesco is able to help
local suppliers, such as Welsh Whisky Company who due to Teso have been able to double
their staff after a contract with Tesco. Also Tesco has been able to help fledgling producers,
by allowing their goods to be introduced to Tesco stores.
7. Examine the social cost and benefits that result from increasing road use.

Some of the costs of increasing road usage are greater traffic jams, increased pollution,
resulting in longer delays and congestion, and increased fuel costs. Costs to society of
encompassing automobile use, which may include those of: maintaining roads, land use,
pollution, public health, health care, and of disposing of the vehicle at the end of its life. The
there is the environmental impact of increasing road usage. Transportation is a major
contributor to air pollution. Animals and plants are often negatively impacted by increase in
transport and road usage. Adding capacity to the road network may not be possible as some
areas particularly in congested urban areas simply do not have room for more roads.
Building elevated roads could be the answer, however this requires greater investment and
cost implications need to be considered with regards to adding capacity. One of the major
costs that is facing the government is finding funding for the maintenance of existing
infrastructure, and then having to find funds for new infrastructure could be financially
overwhelming. The expansion of motorways has increased traffic emissions, and a link has
been drawn between air pollution due to heavy traffic and the health of people who live
within 500 metres of a motorway. Reports in the US indicate lung damage has inflicted
children, linking this directly to motorway pollution.

However there are benefits to be had also, in that the economy benefits such as job and
wealth creation, of automobile production and maintenance, transportation provision,
society wellbeing derived from leisure and travel opportunities, and revenue generation
from the tax opportunities. The ability for humans to move flexibly from place to place has
far reaching implications for the nature of societies.

Evaluate the use of road pricing and one other policy option to reduce road congestion.

Road pricing presents an opportunity to get more value for money of both existing capacity
and new capacity. Tolls represent a more efficient way allocating road space. Road usage is
paid through fuel tax, however this does not follow a user-pays principle. In other words,
people do not get what they pay for, or pay for what they get. Road users impose high costs
on others at no extra cost to themselves. With tolls, at least there may be a free alternative
road so there is some way of avoiding charging. Furthermore, due to competition between
roads, even free alternatives should see a benefit from road pricing. Beyond that, if road
pricing enables a lower rate of fuel duty, lower-income drivers will be better off. Tolls are an
improved method of payment compared with existing taxes, there will be better value for
money. Because of congestion, a road or network of roads becomes less able to operate at
full capacity (and as was intended when it was constructed) within a given amount of time. If
road pricing, with its ability to better manage demand, is used for road funding over less
effective traditional methods, then the value of investment in infrastructure increases, and
commuters enjoy better value for money. Tolls open the door for private sector involvement
in the surface transportation sector. Private operators can, within a regulatory framework,
take on risks of financing new roads with tolls, and also operate an existing road under
profit-maximising incentives.

Drivers who are not willing to pay a price will either:

• Drive at a different time
• Change destinations
• Change routes to the same destination
• Change modes of transportation
• Decide not to travel

One other policy to reduce congestion; Bus Lanes

The implementation of bus lanes will act to change the demand conditions for road use
through regulation and legislation.

The use of bus lanes will restrict car access through giving priority to buses, so making using
public transport a more attractive alternative to the car. The time saved by using buses will
encourage individuals to shift from private to public transport. This will reduce the number
of vehicles on the road and the level of congestion.

The policy may not be a great success because:

 The bus service (quantity and quality) must offer a good alternative to the car. If this
does not exist then individuals will not change their demand patterns.
 The policy is not a short term solution. It may take a considerable amount of time for
individuals to decide to switch demand patterns.
 The policy of bus lanes needs to be enforced through policing and fines. A successful
policy will require scarce resources to be dedicated towards this aim. These resources
will need financing through either higher taxes or switching money from other
expenditure areas, such as schools.