Edexcel Economics (A) A-level Theme 3: Business Behaviour and the Labour Market 3.6 Government Intervention

These flashcards cover key points about government intervention in the economy, reflecting the content of the lecture notes to aid in exam preparation.

What is the main responsibility of the Competition and Markets Authority (CMA)?

To promote competition for the benefit of consumers and investigate mergers and breaches of competition law.

Under what conditions does the CMA investigate a merger?

If it results in a market share greater than 25% or meets a combined turnover of £70 million or more.

What formula do regulators use to set price controls for monopolists?

The RPI-X formula, where X represents expected efficiency gains.

What is the aim of using the RPI-X+K system in regulation?

To encourage investment by allowing firms to enjoy profits from efficiency gains.

What is 'rate of return' regulation, and where is it primarily used?

A method where prices are set to cover operating costs and earn a fair rate of return, used in the USA.

Why is minimum quality standard regulation needed for monopolists?

To ensure that firms do not exploit customers by offering poor quality goods.

What are performance targets intended to achieve in regulated industries?

To provide benchmarks for quality, price, consumer choice, and production costs, aiding in service improvement.

What is the primary goal of promoting small businesses through government intervention?

To increase competition and innovation in the market.

How does competitive tendering work in government contracting?

The government invites private firms to bid for contracts by offering the service at the lowest price, ensuring quality guarantees.

What is the principal-agent problem in nationalised industries?

The issue where managers may take actions that do not align with the best interests of the taxpayers or government.

What happens during regulatory capture?

When the regulator becomes sympathetic to the firms they regulate, losing impartiality.

What is asymmetric information in the context of regulation?

A situation where regulators rely on potentially inaccurate information provided by the industry they regulate.

What are some potential drawbacks of government intervention in the market?

It can limit competition, lead to inefficiencies, and push up costs if regulation is too strong.

What is one consequence of privatisation mentioned in the notes?

It can encourage greater competition, reducing inefficiency and ensuring lower prices.

What are the potential negative effects of deregulation?

It can lead to poor business behaviour and contribute to industry crises.