External Regultion Of Business

Question 1

Regulation definition

Answer 1

Any form of state interference with the operation of the free market

Question 2

Reasons government may regulate

Answer 2

Address market failure

Protect public interest

Question 3

Market failure definition

Answer 3

When market mechanism fails to result in economic efficiency

Question 4

Market mechanism

Answer 4

Interaction of supply and demand

Question 5

When regulation to address market failure is appropriate

Answer 5

1. Imperfect competition
   E.g. monopoly
2. Externalities
   E.g. reducing pollution, banning smoking
3. Imperfect information
   E.g. improving quality standards
4. Equity (social justice)
   E.g. sex discrimination legislation

Question 6

Why protect public interest

Answer 6

The ensure needs of stakeholders are met
Not just of shareholders

Question 7

Economic Regulatory bodies

Answer 7

1. Environment Agency (EA)
2. Information Commissioner
3. Takeover Panel
4. Competition and Markets Authority (CMA)

Question 8

Information Commissioner

Answer 8

Responsible for enforcing:
1. Data protection act
2. Freedom of Information act

Question 9

Takeover Panel

Answer 9

Independent body
Enforces city code on takeovers and mergers for listed companies
Intended to not undermine UK competition

Question 10

CMA

Answer 10

Inspect those suspected of breaching:

1. Competition act
   E.g. price fixing, cartels, abusing a dominant position
2. Enterprise act

Question 11

CMA has powers to

Answer 11

1. Enter premises
   Demand documents
   As part of investigation
2. Impose fines
3. Disqualify directors

Question 12

How is competition regulated in UK?

Answer 12

Competition act

Question 13

Competition act prohibits:

Answer 13

1. Anti-competitive agreements
2. Abuse of a dominant market position

Question 14

Anti competitive agreements can be

Answer 14

Formal
Informal

Question 15

Abuse of a dominant position by either…

Answer 15

One firm or a group of firms

Question 16

Dominant position definition

Answer 16

Able to behave independently of competition

Question 17

Business or group of colluding firms likely to be dominant if…

Answer 17

1. Have high market share
2. Few competitors
3. Little potential of new competitors

Typical abuses e.g.
Unfair selling prices
Restricting production
Applying different trading conditions to equivalent transactions
Attaching unrelated supplementary conditions to contracts

Question 18

Breach of competition act penalty

Answer 18

Fined up to 10% worldwide revenue

Question 19

Cartel

Answer 19

Formal or informal agreement among supposedly competing firms

Question 20

What is cartel activity also a criminal offence under?

Answer 20

Enterprise act

Question 21

Conditions where cartel activity likely to occur

Answer 21

Few competitors in the industry
Little product differentiation
Established communication with competitors
Recession
Industry has excess capacity

Question 22

Business responses to regulation

Answer 22

1. Non-response
2. Mere compliance
3. Full compliance
4. Innovation

Question 23

Regulation: Non response outcome

Answer 23

Penalties e.g. fines

Question 24

Mere compliance outcome

Answer 24

Passing costs to customers

Question 25

Full compliance outcomes

Answer 25

Behaviour is changed as the company adapts their products to meet compliance

Question 26

Innovation can be due to

Answer 26

Regulation (Porter)

Question 27

Insider trading with listed company shares definition

Answer 27

Using insider knowledge to: Make a profit Avoid a loss

Question 28

Insider trading penalties

Answer 28

Also criminal offence under Criminal justice act Most severe type of market abuse

Question 29

What should market participants follow to prevent market abuse and insider trading?

Answer 29

FCA’s code of market conduct

Question 30

Market abuse

Answer 30

Distorting market prices Making false or misleading statements Misusing information

Question 31

Market abuse penalties type of offence

Answer 31

Civil offence Under financial services and markets act

Question 32

Market abuse max penalty

Answer 32

Unlimited fine

Question 33

Regulation of directors in terms of trading

Answer 33

1. Fraudulent trading 2. Wrongful trading

Question 34

Fraudulent trading

Answer 34

Company wound up due to insolvency continues to trade With ‘intention to defraud creditors’

Question 35

Fraudulent trading potential consequences

Answer 35

Director disqualification Criminal sanctions Directors personally liable for company debts

Question 36

Wrongful trading

Answer 36

Director continues to trade Despite knowing the company cannot avoid insolvency Or doesn’t take reasonable steps to minimise the potential loss to creditors

Question 37

Wrongful trading potential consequences

Answer 37

Directors disqualified Contribution to company debts

Question 38

Money laundering act 2 parts

Answer 38

Proceeds of crime act Money laundering regulations

Question 39

Regulators of international trade

Answer 39

1. World trade organisation (WTO) 2. EU 3. Other regional organisations

Question 40

WTO

Answer 40

Promotes free trade Removes barriers

Question 41

EU

Answer 41

Intended to operate as a single European market To allow free movement of: Labour Goods and services Free competition

Question 42

Other regional trading organisations

Answer 42

NAFTA (USA, Canada, Mexico) ASEAN (S.E. Asia)

Question 43

Advantages of international free trade

Answer 43

Specialisation Countries specialise in what they’re good at Transfer raw materials From surplus to deficit Increased competition From new competitors So increased efficiency Larger markets So economies of scale Trading links Closer political links

Question 44

Barriers to international trade

Answer 44

Tariffs/customs duties Import taxes Import quotas Embargoes Hidden subsidies E.g. gov grants for domestic producers Import restrictions Excessive regulations/documentation/safety standards