Reference no: EM133329827

Exercise : (In)efficiencies

Consider the following cases. What kind of (in)efficiency does each relate to and why?

1. The total health expenditure per capita in 2019 was $11,072 in the US (source: OECD). Even accounting for purchasing power, this is substantially higher than all other OECD countries-including for instance the UK ($4,653), Germany ($6,646) and the Netherlands ($5,765). Although the US healthcare system is generally of higher quality, the high costs are also in large part attributable to the high administrative burden in the US system, with many separate rules, funding, enrolment dates, and out-of-pocket costs for employer-based insurance or private insurance.

2. In 2012, Tesla introduced its first mass-market luxury electric car: the Model S. Prior to the entry of Tesla, global car manufacturers were not seriously pursuing the development of electric vehicle technology. Had Tesla not entered the car market and threatened to steal (future) market share of its competitors, other car manufacturers may not have pursued their own electric vehicle ambitions as much.

3. Apple recently release its iPhone 13. The regular version became available for €809 in the Netherlands. Apple consistently reports an operating profit margin (price minus all variable costs, divided by price) of above 60%. This implies that each €809 iPhone 13 generates an operating profit of around €485 for Apple (60% of €809), and only around €324 in costs to actually produce, ship, and sell the iPhone.