3.6 Government Intervention Flashcards
(33 cards)
What is the main competition regulator in the UK?
The Competition and Markets Authority (CMA)
The CMA’s key aims include promoting competition and ensuring market efficiency.
What are the key aims of competition policy?
- Promote competition
- Ensure markets are efficient
- Protect consumer interests by keeping prices low and widening consumer choice
What happens if a merger is deemed to create a monopoly?
It is likely to be prevented.
Why do governments intervene to control monopolies?
To prevent the abuse of monopoly power and market failure.
What is the potential disadvantage of monopoly power?
Reduction in overall economic welfare.
What is price regulation?
It prevents monopolies from charging excessive prices, which might lead to a loss of allocative efficiency.
What does RPI-X represent in price regulation?
A form of price capping used for privatised industries.
What is the value of X in RPI-X?
The amount in real terms that the price has to be cut by.
What is one advantage of RPI-X?
Encourages firms to be more efficient by cutting costs.
What is a risk associated with RPI-X?
It could limit how much profit a firm can make.
What is profit regulation?
Governments control the profits firms earn to ensure they are not excessive.
What do quality standards in regulation ensure?
That minimum standards are met in goods and services.
What are performance targets set by the government?
Targets to ensure minimum quality standards are met.
What is the purpose of the ‘Red Tape Challenge’?
To simplify regulation for businesses, especially small ones.
What role do Small and Medium Sized Enterprises (SMEs) play in the market?
- Create jobs
- Stimulate innovation and investment
- Promote a competitive environment
What does deregulation involve?
Reducing how much an industry is regulated.
What is privatisation?
The transfer of assets from the public sector to the private sector.
What is an example of a privatised firm in the UK?
British Airways.
What is the argument of free market economists regarding the private sector?
It provides incentives for firms to operate efficiently, increasing economic welfare.
What is competitive tendering?
The process where the firm offering the lowest price and best quality wins a government contract.
What is monopsony power?
The market power of a single buyer over many suppliers.
How can governments protect suppliers from monopsony power?
By regulating prices and providing grants or subsidies.
What is nationalisation?
When private sector assets are sold to the public sector.
What type of industries are often nationalised?
Natural monopolies, like the water industry.
