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

A set of flashcards covering key concepts related to government intervention in economics, particularly focusing on regulation, monopolies, and market competition.

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

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

What does SLC stand for in relation to mergers?

Substantial Lessening of Competition.

What are the conditions under which a merger is investigated by the CMA?

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

What is the purpose of price regulation in monopolies?

To force monopolists to charge a price below profit-maximizing levels to benefit consumers.

What does the RPI-X formula represent?

A formula used for setting price controls where RPI refers to the Retail Prices Index and X represents expected efficiency gains.

What is the purpose of 'RPI-X+K' in price regulation?

To provide incentives for firms to invest while ensuring prices are fair and reflective of efficiency gains.

What can happen if the government sets maximum prices without complete information?

It may lead to dynamic inefficiency, where firms cannot maximize profits and thus may not invest.

What does 'rate of return' regulation aim to achieve in the USA?

To cover operating costs and earn a fair return on capital while encouraging investment.

What is the problem with quality standards imposed on monopolists?

It requires political will and understanding to implement effectively.

What is the effect of the Red Tape Challenge on small businesses?

It aims to decrease regulation to promote entrepreneurship and competition.

What is deregulation?

The removal of legal barriers to entry to allow private enterprises to compete in previously protected markets.

What is competitive tendering in government procurement?

The process where the government invites bids from private firms for the provision of goods and services.

What are some criticisms of privatization?

It can lead to higher prices, poor services, and may undervalue public assets when sold.

What are the consequences of nationalization for key industries?

It can ensure that services maximize social welfare but may lead to inefficiencies and higher prices.

What is regulatory capture?

When regulators become influenced by the firms they regulate, losing impartiality and effectiveness.

How can asymmetric information affect government regulation?

Firms may provide inaccurate information, leading regulators to set inappropriate targets or prices.