Government Intervention Flashcards

Flashcards about Government Intervention in Theme 3 Business Behaviour and the Labour Market

What are the key aims for competition policy according to the Competition and Markets Authority (CMA)?

To promote competition, ensure markets are efficient, and protect consumer interests by keeping prices low and widening consumer choice.

Why do governments intervene in the market to control monopolies?

Governments intervene to control monopolies and prevent the abuse of monopoly power due to potential market failure and loss of consumer surplus.

What is RPI-X regulation?

A form of price capping often used for privatised industries, allowing price increases based on inflation (RPI) minus a set percentage (X).

What are the advantages of RPI-X regulation?

Firms can increase profits by cutting costs by more than X, encouraging efficiency and competition.

What are the disadvantages of RPI-X regulation?

Hard to determine the appropriate value of X, potential limits on firm profits and investment, and the risk of regulatory capture.

What is regulatory capture?

Regulators start working in favour of the firm they regulate, rather than in the consumer's interest.

How do regulators ensure quality standards in industries like gas and electricity?

Regulators ensure minimum standards are met and that vulnerable groups are treated fairly.

What is the aim of the UK government’s ‘Red Tape Challenge’?

To simplify regulation for businesses, especially small businesses, to make it cheaper and easier to meet environmental targets and create new jobs.

Why are Small and Medium Sized Enterprises (SMEs) important for a competitive market?

They create jobs, stimulate innovation and investment, and promote a competitive environment.

What is deregulation?

Reducing how much an industry is regulated, which reduces government power and enhances competition.

What does privatisation mean?

Assets are transferred from the public sector to the private sector, allowing firms to operate in a competitive market with a profit incentive.

What is competitive tendering for government contracts?

The government could contract out the provision of public or merit goods, so that private firms operate things such as roads or hospitals.

How does the monopsony power of supermarkets affect farmers?

Supermarkets keep negotiating lower prices from farmers in order to lower their own prices and compete with other supermarkets.

What is nationalisation?

Private sector assets are sold to the public sector, giving the government control of an industry.

Why are natural monopolies created when an industry is nationalised?

Monopolies are created because it is inefficient to have multiple sets of infrastructure, such as water pipes.

What are the impacts of government intervention on prices?

Increased affordability of services, encouragement for firms to become more efficient, and potential for investment to be limited.

How does government intervention impact efficiency?

Private sector firms are more likely to operate at the profit maximising level while public sector firms are more likely to operate at the allocatively efficient level.

How does government intervention affect consumer choice?

More firms competing, but a stringent price ceiling might force some suppliers out of the market, narrowing choice for consumers.

What is regulatory capture and why does it happen?

Regulators start acting in the interests of the company they regulate, due to impartial information, rather than in consumer interests.

How does asymmetric information limit government intervention?

The problem of asymmetric information can make it hard to determine what level a price cap should be imposed at.