3.6 Government Intervention

Question 1

What are the types of intervention in monopoly markets?

Answer 1

1. Price regulation
2. Profit regulation
3. Quality standards
4. Performance targets

Question 2

What are the types of intervention to promote competition and contestability?

Answer 2

1. Promotion of small business
2. Deregulation
3. Competitive tendering - when the government receives bids from private firms to provide a specified product
4. Privatisation

Question 3

What are the types of intervention to protect suppliers and employees?

Answer 3

Suppliers
1. Monopsony power - anti monopsony laws
2. Nationalisation
Employees
1. National minimum wage
2. Legislation on health and safety
3. Permitting trade unions
4. Encouraging firms to adopt best practice

Question 4

What are the desired outcome of government intervention?

Answer 4

Prices: affordable and stable
Profit: Limit how much they make but still make normal profit
Efficiency: Reducing wastage of valuable resources
Quality: Ensuring products are fit for purpose and contribute to a better standard of living
Choice: Wider choice improves standard of living

Question 5

What are the limits to government intervention?

Answer 5

1. Regulatory capture - occurs when firms influence the regulators to change their decisions/ policies to align more with the interest of the firm
2. Asymmetric information