3.6.2: The Impact Of Government Intervention

Question 1

What are the factors that are affected by government intervention?

Answer 1

-Prices.
-Profit.
-Efficiency.
-Quality.
-Choice.

Question 2

What are the limits to government intervention?

Answer 2

-Regulatory capture.
-Asymmetric information.

Question 3

What is the impact of government intervention on price?

Answer 3

Governments are able to ​prevent monopolies charging excessive prices. They try to ensure that ​consumers pay fair prices through regulation.

Question 4

What is the impact of government intervention on profit?

Answer 4

Governments can impose strict price caps, but that may limit investment due to reduced profits.

Question 5

What is the impact of government intervention on efficiency?

Answer 5

Governments can increase ​efficiency in a market by increasing competition and contestability. They try to increase ​dynamic efficiency by encouraging investment. The government may suffer from X-inefficiency in the public sector as they have no incentive to be efficient due to the lack of competition.

Question 6

What is the impact of government intervention on quality?

Answer 6

Governments can ensure firms are meeting minimum targets, which ensure that firms focus on social welfare.

Question 7

What is the impact of government intervention on choice?

Answer 7

Governments may deregulate markets and encourage start-ups to widen competition.

Question 8

How is regulatory capture a limitation of government intervention?

Answer 8

Regulators may act in the interests of firms, possibly due to impartial information.

Question 9

How is asymmetric information a limitation of government intervention?

Answer 9

It is hard to determine the right price cap. Without sufficient information, governments could make poor decisions and lead to a waste of resources.