In 2011, two soap and detergent firms, Unilever and Procter & Gamble, were fined a total of 6315m (US$ 220m) for fixing the price of washing powder in eight European countries. Procter & Gamble is the world's largest consumer products company. The two firms had colluded over prices for more than three years. The collusion began when they agreed to implement an industry-wide programme to improve their environmental impact by obtaining their raw materials from sustainable sources. They also agreed to reduce the amount of packaging they used but to keep the prices unchanged. Then, later, they collectively agreed to raise prices in Belgium, France, Germany, Greece, Italy, Portugal, Spain and the Netherlands. This collusion was against the European Union competition laws and was regarded as 'unfair competition'. Some information from the 2010 financial report of Procter & Gamble (P&G) is shown in Table 1. Table 1: Annual Report of Procter & Gamble 2006 2007 2008 2009 2010 Total Revenue US$ million 64416 72441 79257 76 694 78938 Profits US$ million 8684 10340 12075 13436 12 736 Distributed Profit per Share US$ per share 1.1 1.28 1.45 1.64 1.80 The report states that 'No company in the world has invested more in market research than P&G. We conduct over 20,000 research studies every year. Over the past 15 years, P&G had 125 notable innovations - more than our six largest competitors combined. P&G is the brand-building leader of our industry with 50 brands that are among some of the world's best-known household names - and which together make up 90% of P&G's sales and more than 90% of profits. P&G is creating the advantage of large scale by integrating across our different businesses and markets, allocating resources more efficiently than any small business can do on its own.' (a) Explain what is meant by 'collusion' and when it is most likely to occur in an industry. (b) Analyse, using Table 1, whether price fixing benefited Procter & Gamble. (c) Suggest why creating the advantage of large scale by 'integrating across its different businesses' might benefit a firm. (d) Is the evidence in the article sufficient to conclude that Procter & Gamble is working against the public interest?2 (a) Explain how a consumer should allocate expenditure in order to achieve maximum satisfaction and analyse how a rise in income might affect that allocation. (b) Discuss how a government might achieve a more equal distribution of income. 3 In 2011, as a result of a recession, the governments of some countries reduced the wages that they paid to public sector workers. Trade unions organised mass demonstrations in protest. Discuss how the economic theory of wage determination in perfect competition can be adapted to explain such a situation. 4 The combination of rapid economic growth and inflation is no coincidence. (a) Explain why rapid growth and high inflation might often occur at the same time. (b) Assess what policies might be used by a government to control inflation without harming economic growth. (a) Explain what changes might occur to the age distribution and occupational structure of a population as an economy changes from developing to developed. (b) Assume that you have been given some statistics which indicate that a country has a high rate of unemployment and a dependency on international trade. Consider whether these statistics are sufficient to indicate whether that country may be classed as developing or developed. 6 In 2011, one of the UK's largest multinational banks announced it would reduce the number of people it employed by 43000 - the equivalent size of a small town. (a) Analyse what might cause an increase in unemployment. (b) Evaluate the impact of an increase in unemployment on an economy. 7 'The market system is not able to allocate resources efficiently. Governments are always able to achieve a better resource allocation than the market." To what extent do you agree with this opinion