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Applying Microeconomic Principles to Leading Companies

Microeconomic Principles and their Application

Economics helps explain what is going on in the real world; pick a company from the companies listed below and pick 4 terms out of these 12 microeconomics principles and explain how each of these 4 terms applies to the company of your choice. Use between 150 and 230 words to explain each. (you may use any source to learn more about the companies or these principles, but you should explain in your own words)

List of the companies: Tesla, Amazon, Apple, Facebook, Netflix, Google (Alphabet)

  • Supply and Demand
  • Specialization
  • Competitive Advantage
  • Arbitrage
  • Disintermediation
  • Fixed cost
  • Marginal Cost
  • Price
  • Externalities
  • Amortization
  • Depreciation
  • Innovation

The concept of disintermediation is basically the elimination of a middleman between the supplier and the customer, in most cases removing the costs of that middleman so that the producer increases revenue and the user reduces the price they pay.  In markets where established middlemen introduce a cost (and often a delay in service or innovation) disintermediation is very attractive. However, most middlemen have traditionally provided value, especially in bringing together producers and consumers, facilitating the exchange, and reducing information asymmetry. Disintermediation offers the biggest potential for disruption, when the value provides by intermediaries can be provided through an alternate approach often using technology. 

A typical example of disintermediation is uber, who have removed the need for a middleman between people looking for taxis and those driving them. By creating a user-friendly platform that links together (based on location) passengers and drivers, offers rating and feedback and facilitates the transaction, the traditional market for taxicab companies has been eliminated. A foreseen consequence of this technology has been the opportunity to allow additional drivers to enter the marketplace, especially when demand is high. This creates revenue opportunities for those drivers, and the increased competition means passengers have better service at lower cost. The beneficiaries of uber are the passengers and drivers, while the existing intermediary firms have been threatened (along with some of the government revenue sources associated with the old model).

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