Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics - Theme 3 > 3:5:2 Goverment Intervention > Flashcards

3:5:2 Goverment Intervention Flashcards

1
Q

Why do governments intervene in markets?

A

To maintain competition in markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the two main Government Intervention Methods?

A
  • Competition Policy ( enforcing competition law, which prevents abuse of market dominance and actions that prevent competitiveness)
  • Regulation (introducing direct controls on firms, price caps, where increasing competition does not solve market failure problems)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is Competition Policy?

A

Governments of countries seek to restore and maintain competition in the markets, to ensure efficient working of markets and improved consumer welfare.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the aim of Competition Policy?

A

Ensure that any action that prevents competition is blocked and that fair trading is enforced, e.g. Predatory pricing and collusion should be removed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a Merger?

A

The joining together of at least two firms to form one larger firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the minimum conditions for an investigation into a merger?

A
  • If the Merger results in a market share greater than 25%

- Or has a greater turnover of £70 million or more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why may a merger be blocked?

A

Because the late market share may allow a firm to exhibit characteristics of a monopoly and dominate the market.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What kind of thighs can Firms do if they abuse their market dominance?

A
  • Collusion
  • Acting as a Cartel
  • Deliberately preventing new entry of firms (through Predatory Pricing)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Is fixing prices illegal in the UK?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Example of price fixing?

A

In 2011, nine supermarkets in the UK were found to be fixing the price of milk and cheese preoducts - Tesco alone was fined £10 million

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Regulation is [………] control of firms

A

Direct

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the difference between Government Intervention and Competition Policy?

A

Government acts as a surrogate for competition by making firms cut prices, or take legal action, sell off assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What happens to a firm if they do not follow the government regulation?

A

Firms can be fined or can lose their right to operate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is meant by Surrogate for Competition?

A

attempting to ensure that prices, profits and service quality are similar to what could be achieved in competitive markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is Price Capping used for?

A
  • Used to regulate several privatised utilities in the UK.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What actually is a Price Cap?

A

Is an upper limit set on the increase that the firms can add to their retail prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What does the Price Cap take into account?

A
  • Inflation

- Possible efficiency gains or investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is Profit Regulation?

A

This method allows a firm to make a certain level of profit based on its capital stock before the remainder of its profit is taxed at 100%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the difference between the price capping system and Profit Regulation?

A

Means that there is no incentive to make efficiency gains that increase profits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

In Profit Regulation are Firms encouraged or penalised for their success?

A

Penalised and instead encouraged to make limited profit.

21
Q

In Profit Regulation - What happens to a Firms Profit if they exceed their Profit Limit?

A

Spent on additional capital to increase the level of capital stock.

22
Q

Profit Regulation - How do Firms cheat the system?

A
  • They overstate the value of their capital
  • Embark In wasteful spending to ensure that they can increase the Rate of Return on their investment
  • In effect increasing their profits.
23
Q

What is a Price Cap?

A

Is a form of regulation that sets a cap on the amount that certain firms can raise their prices.

24
Q

What are Performance Standards and Quality Targets?

A

Based on improvements in the quality of service or reductions in the number of customer complaints.

25
Q

How can the government regulate Performance Standards and Quality Targets ?

A

Supported by a system of fines, should the firm fail to meet the performance targets

26
Q

Give an example of an Industry that uses Performance Standards and Quality Targets?

A

Punctuality of UK trains

27
Q

Why do governments seek to promote the contestability in markets?

A

In order to give consumers the benefit of greater choice, innovation and competition.

28
Q

How do Governments promote contestability in markets?

A

Can do this through reduction in barriers to entry - creating a perfectly Contestable Market in theory having no barriers to entry.

Promote start up businesses because these firms can establish themselves as potential challengers to existing operators.

29
Q

How will firms use their position to prevent a market from becoming Contestable?

A
  • Use Pricing Strategies

- Legal Barriers such as Patents

30
Q

How do Regulators (Government) stop Firms from preventing a Contestable Market?

A

They can investigate into firms decisions to open up the market.

31
Q

What is the process of Privatisation?

A

Is the process by which government transfers the ownership of a state-owned company from the public sector to the private sector.

32
Q

What is Competitive Tendering?

A

The process by which a number of private-sector firms compete to win the right to perform a task on behalf of the government. They will charge the government for a particular task and seek to make a profit.

33
Q

What are the positives to the government of Competitive Tendering?

A

Results in the cheapest most cost effective bid winning.

34
Q

What can prevent the power of monopsonists?

A
  • CMA
  • Legislation
  • Creation of Competition
35
Q

How does the reduction of the power of monopsonists benefit suppliers?

A

Helps to protect suppliers from exploitation.

36
Q

What can the government do to regulate businesses?

A
  • Break up Firms
  • Fine Firms
  • Block Mergers
  • Jail executives
37
Q

What impact does Government Legislation have on markets?

A
  • Increased Competition, therefore reduce prices, as well as increase quality and innovation
38
Q

Government actions can result in […….]

A

Government Failure

39
Q

What is meant by Government Failure?

A

The actions of the government that actually move the industry away from the socially optimal level of output that the government was trying to achieve.

40
Q

Why is it sometimes difficult for the Government to Regulate Firms?

A
  • Firms closely guard their data surrounding costs, innovations, Pricing Strategies and employment, to make it difficult for the regulator to form a complete picture of the business.
41
Q

Why may there be Asymmetric Information in regulating markets?

A

Firms possess more information than the regulator and therefore is in a strong posture on to prevent competition.

42
Q

What is Asymmetric Information?

A

Where one party has access to more information than another, means that the regulator is unable to fulfil its duties.

43
Q

What is Competition Policy used for?

A

Used to prevent the abuse of market power and Prevent acts that do not allow fair competition such as a merger or an act of collusion.

44
Q

What is the link between an Acquisition and Merger with the CMA?

A

A merger / Acquisition may be referee to the CMA to prevent large monopolies forming.

45
Q

Regulation is a Form of [……….]

A

Direct Control

46
Q

What is RPI - X?

A

Is a price-Control method for regulating some privatised utilities.

47
Q

What is RPI + K?

A

Is a price-Control but K is added to allow for increases in investment.

48
Q

What prevents regulators from doing their job effectively?

A

Asymmetric Information.

Economics - Theme 3 (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions