4.2.2 Business regulation Flashcards
What are ways busineses are regulated?
- Preventing anti-competitive markets.
- Controlling mergers and takeovers
- Privatisation
These are all methods of promoting/ sustaining competition
Why are busineses regulated to prevent anti-competitive markets?
Anti-competitive markets will only benefit the business and not the consumer and usually leads to reduce standard of livings for consumers whilst firms can gain high profits. As a result CMA will intervene through laws and legislations
Explain controlling mergers and takeovers
The CMA will also intervene and stop merges or takeovers of two firms if they believe they will become too powerful in the market and gain monopoly power where they can manipulate market conditions.
Explain privatisation
This is where assets/capital which was owned by the government are sold off to the private sector. As a result of no longer being in the public sector, there are now profit motives. Privatisation is a good method of promoting competition as new firms enter the private sector forcing firms to be more efficient but also benefiting the consumer with a wider choice and greater consumer power where they cannot be exploited.
Advantages of regulation in the workplace
Ensures employees are working in good high standard conitions. This can increase the welfare of the worker which in return can benefit the business through greater output and productivity levels.
Advantages of regulation in the market place
Gives consumers greater power for example through restricting collusive behaviour so greater competition and having to compete on price and quality where consumers will both benefit (lower prices and higher quality).
Disadvantages of regulation in the market place
Reduced producer surplus and power in the market and lower levels of profits, harder to achieve business objective of profit maximisation.
Advantages of regulation of NMW.
Increase in NMW
Will drive up standards of living as purchasing power of the workers on NMW increases and can spend greater. Also will be able to cope with any increase in living costs and perhaps not fall into poverty.
Disadvantages of NMW regulation
Increase
Can lead to the wage spiral effect. Higher NMW means greater costs for a business so they will pass this onto the consumer in order to prevent any reduction in profit margins. As a result cost push inflation occurs and so cost of living will rise and if NMW doesnt increase again it causes for reduced purchasing power and reduced living standards as struggle to afford the necessities. However if NMW increases again spiral occurs again. Cost-push inflation will also worsen the global competitivness of the UK economy negatively affecting the balance of payments.
Other disadvantages of an increase in NMW
Often creates unemployment as an increase in the NMW will see the supply of labour rise but demand fro labour fall as the costs for firms will increase if they demand more. This creates excess supply of labour representing the quantity of unemployment introduced in the economy.Although this will depend on where the economy is operating within the economic cycle as if the economy is growing than demand for labour will be high due to the fact demand is derived and so in terms of high economic activity and consumption, firms will need to increase their demand for labour too meet higher demand levels in economy
Overall disadvantages of business regulation
Always causes for costs to rise therefore profits will fall for a business. They may respond to the regulation either through pushing prices higher to compensate although depends on PED as this can reduce competivity. Though costs of production will rise as result of the regulation and can cause some busineses to exit the market.
