Market structure — practice question

Read the source material thoroughly before you answer Question 1. Source material on bank mergers In 2019, three Nigerian commercial banks merged to create Nigeria’s largest commercial bank. Also in 2019, two US commercial banks combined to form the US’s 6th largest commercial bank. In the US, the three biggest banks held 32% of the market. In both the US and Nigeria, larger banks responded by opening more branches, running advertising campaigns and improving online banking. Bank mergers can lead to some bank employees being made redundant. Unemployment did rise in Nigeria in 2019. This was likely to have had an effect on the government’s budget because both government tax revenue and government spending would have changed. Most commercial bank workers are highly educated. The number of years people spend in education can influence a country’s birth rate. Fig. 1.1 displays average years of schooling and the birth rate in selected countries in 2019. Fig. 1.1 Average years of schooling and birth rate in selected countries 2019. The vertical axis is labelled Average years of schooling and goes from 0 to 16. The horizontal axis is labelled Birth rate and goes from 0 to 50. The plotted points are labelled as follows: Germany (about 10 on birth rate and about 15 average years of schooling), US (about 12 on birth rate and about 14 average years of schooling), Argentina (about 18 on birth rate and about 11 average years of schooling), Eritrea (about 27 on birth rate and about 4 average years of schooling), Nigeria (about 32 on birth rate and about 6 average years of schooling), and Chad (about 42 on birth rate and about 3 average years of schooling). Some households in both Nigeria and the US, where spending is greater than income, borrow from commercial banks. In Nigeria, some children in low-income households do not get enough food because food prices are high. A government subsidy to farmers could be used to support low-income Nigerian households. The subsidy could also help to reduce the deficit on the current account of its balance of payments. Whether this happens will depend on Nigeria’s inflation rate compared with other countries and on incomes at home and overseas. In the US, nearly 35% of children are overweight. One reason is the consumption of foods and drinks that contain a lot of sugar. The US government could set a minimum price on these products, including chocolate. A minimum price could move the market nearer to the point where social benefit equals social cost. However, some consumers think this would be unfair and some firms think it would cut profits. A minimum price may also create a cost for the government, and how successful it is would depend on how high the minimum price is fixed.