Goverment Intervention For Increasing Competition And Protectign Workers Flashcards
What is a sme (example) and what are benefits of smes (amount)
- A sme is a small medium enterprise
An example is a local pizza takeaway - there are more smes so they employ more people
What is a start up (example)
- A start up refers to a business initiated by an entrepreneur which aims to develop into a scale bale business and further than the solo founder
- example of a start up is Uber and Airbnb
Why should governments support smes and start ups
By supporting smes and start ups -> it increases the amount of firms who rise to the challenge of competing with established firms -> this leads to increased competition which leads to benefits for the consumers
What benefits do sme and start ups provide for consumers
More competition which leads to lower prices, more choice and higher quality
Give an example of how supporting smes can be beneficial (audit)
Auditing in the uk is an oligopoly -> by supporting smaller auditing companies there is more firms who compete with the oligopoly which increases efficiency
What are the overall of benefits of smes and start ups
- provide competition -> increased efficiency
- more jobs and increased employment
- increased choice
- can be a seedbed for innovation
- may be more flexible and efficient into responding to consumer needs
What are some disadvantages of smes
- hard to get credit for finance -> small businesses are seen as risky borrowers so banks are reluctant to lend to them
- business skills -> many people believe that they do not have the business skills to operate a business
- recruitment -> hard to find competent employees
What can governments do to Support smes
- provide information
- deregulate to make it easier to enter markets
- streamline the process of setting up a business
- provide training for business owners
- educational reforms to increase the skills of overall workforce
What is competitive tendering
- competitive tendering is when private sector firms compete for contracts to carry out tasks on behalf of the government
- examples include catering for schools and constructing hospitals
What is the rationale behind competitive tendering
Competitive tendering brings back the profit motive to jobs previously done by the government with increased efficiency and quality -> tax payers benefit from lower prices and higher quality services
What are the benefits of competitive tendering
- if there is a competitive market for government contracts, more private sector firms will be responsible for allocating resources into the economy -> increased efficient and lower prices and higher quality
What are some disadvantages of competitive tendering
- if governments focus too much on the price aspect of contracts -> firms may lower quality of projects which will lower tax payers
- there is also Normally a lack of bidders
What is privatisation
Privatisation is the process of when public sectors companies change over to the private sector. This change is enacted by the government
What is the rationale behind privatisation
Privatisation brings back the profit incentive and competition which leads to increased efficiency and higher quality products
What are disadvantages of privatisation
- governments lose out on a source of income
- some things such as infrastructure are better off under state provision
- privatisation with poor regulation and a natural monopoly situation may lead consumers worse off -> example of this is higher prices in energy markets and railways
- less attention is paid to social objectives
What are some advantages of privatisation
- private sector brings back the profit motive which incentivises cost cutting, increased efficiency and increasing productivity
- the selling of public companies bring lots of money to the government
- a state monopoly can be reduced to several firms which would increase comeption which would lead to higher quality goods at lower prices
What is deregulation
Deregulation is the removal of government regulations
What is the aim of deregulation
Deregulation makes it easier to enter and exit markets -> lower barriers to entry -> this makes the market more contestable
- increase the number of firms in the market
- or make incumbent firms fearful of entry
How does deregulation affect contestability
Increases contest ability
What effect does increased contest ability have on price
- downward impact on price
- incumbent firms are less likely to profit maximise as they are fearful of hit and run entry
- if more firms join, this has a downward pressure on price
How does contest-ability affect quality
Contestability puts pressure on firms to increase quality as the threat of new firms and jointing of new firms put pressure on them to maintain market position
How does contestability affect innovation
Easier for start ups to enter markets which increases innovation
How can we protect suppliers
- fines and jail time for people with exploitative practices
- increase contestability -> helps combat monopsony power -> more buyers equals less monopsony power -> done by increasing no of firms in market
- set a minimum price -> price floor which prices cannot fall under -> less exploitation
How can we protect workers
- minimum wages
