3.6.2 Impact of Government Intervention Flashcards
What is the impact of government intervention on prices?
Governments are able to stop monopolies charging excessive prices whilst they aim to limit their profit. They try to ensure consumers pay high prices and receive a good quality service
What is the impact of government intervention on efficiency?
By increasing competition and contestability, they can increase efficiency. By ensuring they keep their costs low, x efficiency is improved
However, too much regulation can see soaring costs leading to a loss of dynamic efficiency
What is the impact of government intervention on quality?
If govt intervention is nationalisation, govt will act in consumer interest to keep prices low and increase quality of the good or service. A public sector firm is more likely to be alocatively efficient, they will see lower costs due to economies of scale
However, public sector could be x inefficient, pushing up prices.
What is the impact of government intervention on choice?
Governments are likely to only offer one good at they are the only firm
What are the two limits of government intervention?
- regulatory capture
- asymmetric information
How does regulatory capture affect government intervention?
Regulatory capture emerges when the regulator is captured by the firm/industry they are trying to regulate. This means they will become more empathetic and see things from the ‘firms perspective’, this removes impartiality and the ability to regulate.
Large organisations can invest huge sums in order to find loop holes in the system, many CEOs have personal connections with those regulating also.
How does asymmetric information affect government intervention?
Regulatory bodies use information provided to them by industries in order to make informed choices. It is in the industries best interest to maximise their profits so they distort the shared information
